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Reed Corporation has a capital budget of $2.25 million

Reed Corporation has a capital budget of $2.25 million. The company wants to maintain a target capital structure which is 60% debt and 40% equity. The company forecasts that its net income this year will be $800,000.

a.         If the firm uses a payout ratio of 25%, what dividend will Reed pay?

b.         How much will be added to retained earnings?

c.         If the company wishes to maintain its debt-equity ratio to finance the capital budget, how much debt must the firm issue?

d.         How much equity must the firm issue?

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