A firm has $50 million in assets and its optimal capital structure is 60% equity. If the firm has $12 million in retained earnings, at what asset level will the firm need to issue additional stock? (Assume no growth in retained earnings.)
1. The firm should have already issued additional stock at $20 million.
2. The firm can increase assets to $30 million.
3. The firm can increase assets to $10 million.
4. There is insufficient information to determine an answer.