Problem:
A company has a target capital structure that consists of 40 percent debt and 60 percent equity. The company's capital budget for next year is $10 million. The company expects a net income of $8 million. The company's cost of capital is 12 percent.
Required:
Question: If the company decided to pay out $4.5 million in dividends, how much would it need to rise in equity outside the company?
Note: Give you opinion citing relevant ethical principles.