ABX Sdn Bhd. expects EBIT of RM2,000,000 for the coming year. The firm’s capital structureconsists of 40% debt and 60% equity, and its marginal tax rate is 27%. The cost of equity is 14%and the company pays a 10% rate on its RM5,000,000 long-term debt. One million shares ofcommon stock are outstanding.In the next capital budget cycle, the firm expects to fund one large positive NPV project costingRM1,200,000 and it will fund this project in accordance with its target capital structure. If the firmfollows a residual dividend policy and has no other projects, what is its expected dividend payoutratio?

ABX Sdn Bhd. expects EBIT of RM2,000,000 for the coming year. The firm’s capital structureconsists of 40% debt and 60% equity, and its marginal tax rate is 27%. The cost of equity is 14%and the company pays a 10% rate on its RM5,000,000 long-term debt. One million shares ofcommon stock are outstanding.In the next capital budget cycle, the firm expects to fund one large positive NPV project costingRM1,200,000 and it will fund this project in accordance with its target capital structure. If the firmfollows a residual dividend policy and has no other projects, what is its expected dividend payoutratio?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 11P

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