Question: (Constant euro dividend payout policy) Ascott Prints is in negotiation with two of its largest customers to increase the firm's sales dramatically. The increase will require that Ascott Prints expand its production facilities in 2016 at a cost of £3 million. Parker expects to pay out £800,000 in dividends to its shareholders next year. Ascott Prints maintains a 40 percent debt ratio in its capital structure.
a. If Ascott Prints earns £1.2 million in 2015, how much common stock will the firm need to sell in order to maintain its target capital structure?
b. If Ascott Prints wants to avoid selling any new stock, how much can the firm spend on new capital?