If a Firm Uses External Financing as a Plug Item

question 97

Multiple Choice

If a firm uses external financing as a plug item, has a new capital budget of $2 million, a net income of $3 million, and a plowback ratio of 40%, how much should be raised in external funds?

• A)$200,000
• B)$600,000
• C)$800,000
• D)$1,200,000 Plowback = $3 million x .40 = $1.2 million

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Definitions:

Adenohypophysis

The anterior, glandular part of the pituitary gland responsible for the release of hormones.

Neurohypophysis

The posterior portion of the pituitary gland responsible for the storage and release of hormones like ADH and oxytocin.

Corticotropin

A hormone produced by the pituitary gland that stimulates the adrenal cortex to release cortisol, involved in stress response.

Somatotropin

A growth hormone produced by the anterior pituitary gland that stimulates growth, cell reproduction, and cell regeneration in humans and other animals.