A firm expects to have available $500,000 of earnings in the coming year, which it will retain for reinvestment purposes. Given the following target capital structure, at what level of total new financing will retained earnings be exhausted?
Target Market
Source of Capital Proportions
Long-term debt 40%
Preferred stock 10
Common stock equity 50
Answer
A. $500,000.
B. $800,000.
C. $1,000,000.
D. $1,500,000.