The Golden Baked Goods (GBG) is expecting a jump in sales and needs to add $2 million in assets. Its current balance sheet is:

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The Golden Baked Goods (GBG) is expecting a jump in sales and needs to add $2 million in assets. Its current balance sheet is:

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Its current operations are expected to add $500,000 to retained earnings during the coming year. Its current debt, originally issued at par, has a 6% coupon rate, maturity of 10 years, market price of $864.10, and pays interest semiannually. The current preferred stock (30,000 shares outstanding) carries a dividend of $6.00 per share and is selling in the market at $81.50 per share. GB’s common stock (220,000 shares outstanding) is selling in the market at $45 per share. The company just paid a common stock dividend of $2.50 per share. The dividends are expected to grow at 4% per year for the foreseeable future. GBG’s overall tax rate is 35%.

GBG can sell new common stock at current market price with a flotation cost of 5%, new preferred stock with a dividend of $6/share to net $80 per share, and new semiannual coupon bonds (Par value $1,000) with 20 year maturity and a 9.5% coupon to net $957.10. Assume that the current market-based capital structure is optimal.

What percent of new financing must come from equity funds?

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