Problem
i. For the next fiscal year, you forecast net income of $50,000 and ending assets of $500,000. Your firm's payout ratio is 10%. Your beginning stockholders' equity is $300,000 and your beginning total liabilities are $120,000. Your non-debt liabilities such as accounts payable are forecasted to increase by $10,000. What is your net new financing needed for next year?
ii. Then, Assume your beginning debt in the problem above is $100,000. What amount of equity and what amount of debt would you need to issue to cover the net new financing in order to keep your debt-equity ratio constant?