Question: Quesada Corporation reported net income of $4 million on sales of $100 million. It retained 50% of net income. A summary of Quesada's ending balance sheet (in millions) is shown below:

Current Assets $20 Current Liabilities $10

Long-Term Liabilities 20

Fixed Assets 40 Equity 30

Total $60 Total $60

The firm's beginning equity was $28.

Quesada Corporation (Problem 13) is unwilling to cut its dividend payout of 50% but is willing to raise external equity in order to achieve its target of 12% sustainable growth. As a percent of sales, how much external equity must be raised each year to reach this target? In this problem, use the following approach:

g* = % Change in Internal Equity + % Change in External Equity

= PRAT + e

Where: e = New Stock Issued / Beginning of Period Equity

Thus:

e = g* - PRAT

New Stock Issued/ Sales = e x (Beginning of Period Equity / Sales)

Price: $2.99

Solution: The downloadable solution consists of 2 pages
Deliverable: Word Document