Assignment:
Northern Pacific Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 40 percent with a $10 million investment in plant and machinery. The firm wants to maintain a 40 percent debt-to-total-assets ratio in its capital structure; it also wants to maintain its past dividend policy of distributing 45 percent of last year’s net income. In 2006, net income was $5 million. How much external equity must Northern Pacific seek at the beginning of 2007 to expand capacity as desired?
Provide complete and step by step solution for the question and show calculations and use formulas.