olo Ships has 109,280 shares outstanding and plans to pay $4.77 per share in dividends next year. Solo has a capital budget of $680,741 for next year and plans to maintain its present debt ratio of 0.30. If earnings are expected to be $8 per share, how much external equity must Solo raise

External equity means funds that must be raised issuing new equity shares, when the amount that equity source of capital needs to contribute to an investment project cannot be entirely satisfied using retained earnings of the company.

In the case, $680,741 is the required funds, out of which 0.30 would be contributed by debtholders as computed thus:

Debt portion of the required financing=$680,741*0.30

Debt portion of the required financing=$204,222.30

balance to be contributed by equity shareholders=$680,741-$204,222.30

balance to be contributed by equity shareholders=$476,518.70

Out of the equity finance, the amount to be generated internally from retained earnings is the retained earnings per share multiplied by shares outstanding

retained earnings per share=$8-$4.77

retained earnings per share=$3.23

internal equity finance=109,280*$3.23

internal equity finance=$352,974.40

external equity finance=total equity finance-internal equity finance

external equity finance=$476,518.70-$352,974.40

external equity finance=$123,544.30

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