A firm maintains a capital structure with debt-equity ratio of 2/3 and has $24,000 earnings for...

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A firm maintains a capital structure with debt-equity ratio of 2/3 and has $24,000 earnings for...

A firm maintains a capital structure with debt-equity ratio of 2/3 and has $24,000 earnings for the year-end. The firm follows a residual dividend policy.

a. What is the maximum capital budget amount the firm can finance without raising external equity?

b. Suppose the firm's capital structure before financing the maximum capital budget consisted of $500,000 debt and $750,000 equity. Calculate the firm's debt ratio after financing the maximum capital budget in part (a).

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Answer 1

Answer #1

debt to equity ratio is 2/3 earnings = 24000 a) since the firm follows residual dividend policy then the maximum it can use a

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Answer 2

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