Poly is planning for P5 million in capital expenditures next year. Poly’s target capital structure consists of 60% debt and 40% equity. If net income next year is P3 million and Poly follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio?
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Poly is planning for P5 million in capital expenditures next year. Poly’s target capital structure consists of 60% debt and 40% equity. If net income next year is P3 million and Poly follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio?
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- Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Expected Rate of Return TE Project Cost 1 $2,000 16.00% 2 3,000 15.00 5,000 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of ra = 9%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $7.00 per year at $56.00 per share. Also, its common stock currently sells for $41.00 per share; the next expected dividend, D1, is $4.25; and the dividend is expected to grow at a constant rate of 6% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. a. What is the cost of each of the capital components? Do not round intermediate calculations. Round your answers to two decimal places. Cost of debt: % Cost of preferred stock: % Cost of retained earnings: % b. What is Adamson's WACC? Do not round intermediate calculations. Round your answer to two decimal places. % c. Only projects…Loyola Corporation has a target capital structure of 25% bond financing, 20% preferred stock financing, and 55% common equity financing. Loyola forecasts it will retain $1,000,000 of new earnings in the coming year. Where is the break in Loyola's cost of capital schedule?Honda Inc. (HI) has the following capital structure, which it considers to be optimal: debt = 25%, preferred stock = 15%, and common stock = 60%. Honda Inc.’s tax rate is 40%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. Honda Inc. paid a dividend of $3.70 per share last year (D0), and its stock currently sells at a price of $60 per share. Ten-year Treasury bonds yield 6%, the market risk premium is 5%, and Honda Inc.’s beta is 1.3. The following terms would apply to new security offerings. Preferred: New preferred could be sold to the public at a price of $100 per share, with a dividend of $9. Flotation costs of $5 per share would be incurred. Debt: Debt could be sold at an interest rate of 9%. Common: New common equity will be raised only by retaining earnings a. Find the component costs of debt, preferred stock, and common stock. b. What is the WACC?