[CeeCee53]

Northern California Heating and Cooling Inc. has a six-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 35 percent with a $10 million investment in plant and machinery. The firm wants to maintain a 40 percent debt/assets ratio in its capital structure; it also wants to maintain its past dividend policy of distributing 45 percent of the prior year's net income. Last year, net income was $5 million. How much external equity must Northern California seek at the beginning of next year to expand capacity as desired?

[CeeCee53]

I'm sorry I put this questions figures on the wrong question my answer if it is right is
Retained earnings = Net income (1 – Payout ratio)
$5,000,000(1 - .45 =0.55) = $2,750,000.
External equity needed:
Total equity required = (New investment) (1 – Debt ratio)
$10,000,000(1 -.40 =0.60) = $6,000,000.
New external equity needed
$6,000,000 – $2,750,000 = $3,250,000.
I wanted to know if I figured it right.