Parker Prints is in
negotiation with two of its largest customers to increase the
firm's sales dramatically. The increase will require that Parker
expand its production facilities at a cost of $25 million. Parker
expects to pay out $6.5 million in dividends to its shareholders
next year. Parker maintains a 30 percent debt ratio in its capital
structure.
a. If Parker earns $20 million next year, how much common stock
will the firm need to sell in order to maintain its target capital
structure.
b. If Parker wants to avoid selling any new stock, how much can
the firm spend on new capital expenditures?
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