EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 12, Problem 13P
Summary Introduction
To determine: The marginal cost of capital schedule.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The CEO of Harlem Hardware Supplies has submitted together a capital budget of $48,500,000 for the following year’s investment opportunities. He expects to have $19,000,000 in retained earnings at the end of the year. Harlem’s target capital structure calls for 45 percent equity. Based on these figures, will Harlem be able to meet their capital budget needs with retained earnings?
Use these data to calculate Harlem's retained earnings break point (REBP). Calculate the figure to the nearest dollar
A firm expects to have net income of $5,000,000 during the next year. The company’s target capital structure is 60% debt and 40% equity. The company's director of capital budgeting has determined that the optimal capital budget for the coming year is $5,000,000. If MSL Tech follows a residual distribution policy (with all distributions in the form of dividends) to determine the coming year’s dividend, then what is the firm’s expected dividend payments?
$2,000,000
$3,000,000
$5,000,000
$6,000,000
Using the data from Question 31, find the dividend payout ratio for the company.
20%
40%
60%
50%
Plato, Inc., expects to have net income of $5,000,000 during the next year. Plato’s target capital structure is 35 percent debt and 65 percent equity. The company’s director of capital budgeting has determined that the optimal capital budget for the coming year is $6,000,000. If Plato follows a residual distribution policy (with all distributions in the form of dividends) to determine the coming year’s dividend, then what is Plato’s payout ratio?
38%
42%
58%
33%
22%
Chapter 12 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 12 - Prob. 1QTDCh. 12 - Prob. 2QTDCh. 12 - Prob. 3QTDCh. 12 - Prob. 4QTDCh. 12 - Prob. 5QTDCh. 12 - Prob. 6QTDCh. 12 - Prob. 7QTDCh. 12 - Prob. 8QTDCh. 12 - Prob. 9QTDCh. 12 - Prob. 10QTD
Ch. 12 - Prob. 11QTDCh. 12 - Prob. 12QTDCh. 12 - Prob. 13QTDCh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5PCh. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Prob. 8PCh. 12 - Prob. 9PCh. 12 - Prob. 10PCh. 12 - Prob. 11PCh. 12 - Prob. 12PCh. 12 - Prob. 13PCh. 12 - Prob. 14PCh. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Prob. 18PCh. 12 - Prob. 19PCh. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Prob. 22PCh. 12 - Prob. 23PCh. 12 - Prob. 24PCh. 12 - Prob. 26P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Green Caterpillar Garden Supplies Inc. has the following end-of-year balance sheet: Green Caterpillar Garden Supplies Inc. Balance Sheet For the Year Ended on December 31 Assets Liabilities Current Assets: Current Liabilities: Cash and equivalents Accounts payable Accounts receivable Accrued liabilities Inventories Total Current Assets Net Fixed Assets: Net plant and equipment (cost minus depreciation) Total Assets $150,000 400,000 350,000 $900,000 $2,100,000 $3,000,000 Notes payable Total Current Liabilities Long-Term Bonds Total Debt Common Equity Common stock Retained earnings Total Common Equity Total Liabilities and Equity $250,000 150,000 100,000 $500,000 1,000,000 $1,500,000 800,000 700,000 $1,500,000 $3,000,000arrow_forwardBuena Terra Corporation is reviewing its capital budget for the upcoming year. It has paid a $3.00 dividend per share (DPS) for the past several years, and its shareholders expect the dividend to remain constant for the next several years. The company’s target capital structure is 60% equity and 40% debt, it has 1,000,000 shares of common equity outstanding, and its net income is $8 million. The company forecasts that it will require $10 million to fund all of its profitable (that is, positive NPV) projects for the upcoming year. a. If Buena Terra follows the residual dividend model, how much retained earnings will it need to fund its capital budget? b. If Buena Terra follows the residual dividend model, what will be the company’s dividend per share and payout ratio for the upcoming year? c. If Buena Terra maintains its current $3.00 DPS for next year, how much retained earnings will be available for the firm’s capital budget? d. Can the company maintain its current capital structure,…arrow_forwardBuena Terra Corporation is reviewing its capital budget for the upcoming year. It has paid a $3.00 dividend per share (DPS) for the past several years, and its shareholders expect the dividend to remain constant for the next several years. The company’s target capital structure is 60% equity and 40% debt, it has 1,000,000 shares of common equity outstanding, and its net income is $8 million. The company forecasts that it will require $10 million to fund all of its profitable (that is, positive NPV) projects for the upcoming year. a. If Buena Terra follows the residual dividend model, how much retained earnings will it need to fund its capital budget? b. If Buena Terra follows the residual dividend model, what will be the company’s dividend per share and payout ratio for the upcoming year? c. If Buena Terra maintains its current $3.00 DPS for next year, how much retained earnings will be available for the firm’s capital budget? d. Can the company maintain its current capital structure,…arrow_forward
- A closely- held plastic manufacturing company has been following a dividend policy which can maximize the market value of the firm as per Walter's model. Accordingly, each year at dividend time the capital budget is reviewed in conjunction with the earnings for the period and alternative investment opportunities for the shareholders. In the current year, the firm reports net earnings of Rs. 5,00,000. It is estimated that the firm can earn Rs. 1,00,000 if the amounts are retained. The investors have alternative investment opportunities that will yield them 10 per cent. The firm has 50,000 shares outstanding.What should be the D/P ratio of the company if it wishes to maximize the wealth of the shareholders?arrow_forwardAs part of her analysis of the annual distribution policy and its impact on the firm’s value, she makes the following calculations and observations: • The company generated a free cash flow (FCF) of $45.00 million in its most recent fiscal year. • The firm’s cost of capital (WACC) is 14%. The firm has been growing at 10% for the past six years but is expected to grow at a constant rate of 8% in the future. • The firm has 11.25 million shares outstanding. • The company has $120.00 million in debt and $75.00 million in preferred stock. Along with the rest of the finance team, Elle has been part of board meetings and knows that the company is planning to distribute $120.00 million, which is invested in short-term investments, to its shareholders by buying back stock from its shareholders. Elle also observed that, at this point, apart from the $120.00 million in short-term investments, the firm has no other nonoperating assets. Using results from Elle’s calculations and…arrow_forwardA closely held plastic manufacturing company has been following a dividend policy which can be maximize the market value of the firm as per walter's model. Accordingly,each year at dividend time the capital budget is reviewed in conjunction with the earnings for the period and alternative investment opportunities for the shareholders.in the current year, the firm reports net earnings of rs.5,00,000. It is estimated that the firm can earn rs.1,00,000 if the amounts are retained. The investors have alternative investment opportunities that will yield them 10 per cent. The firm has 50,000 shares outstanding. What should be the D/P ratio of the company of it wishes to maximize the wealth of the shareholders?arrow_forward
- Buena Terra Corporation is reviewing its capital budget forthe upcoming year. It has paid a $3.00 dividend per share (DPS) for the past several years, andits shareholders expect the dividend to remain constant for the next several years. The company’starget capital structure is 60% equity and 40% debt, it has 1,000,000 shares of commonequity outstanding, and its net income is $8 million. The company forecasts that it will require$10 million to fund all of its profitable (i.e., positive NPV) projects for the upcoming year.a. If Buena Terra follows the residual dividend model, how much retained earnings willit need to fund its capital budget?b. If Buena Terra follows the residual dividend model, what will be the company’s dividendper share and payout ratio for the upcoming year?c. If Buena Terra maintains its current $3.00 DPS for next year, how much retained earningswill be available for the firm’s capital budget?d. Can the company maintain its current capital structure, the $3.00 DPS,…arrow_forwardTong Foong Co. Ltd. has decided that its capital budget during the coming year will be $20 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) are projected to be $34.667 million for the year. The company has $200 million of assets; its average interest rate on outstanding debt is 10 percent; and its tax rate is 40 percent. Required: How much debt is outstanding (in dollars) and what is the cost of the debt (in dollars) for the period? Compute the Earnings After Tax (Net Income)? How much equity is required for the coming year capital budget? If the company follows the residual dividend policy and maintains the same capital structure, what will its dividend payout (in $) and the dividend payout ratio (in %)?arrow_forwardBrock Brothers wants to maintain its capital structure which is 30 percent debt and 70 percent equity. The company forecasts that its net income this year will be $1,000,000. The company follows a residual distribution policy and anticipates a dividend payout ratio of 40 percent. What is the size of the company’s capital budget? a) $600,000 b) $857,143 c) $1,000,000 d) $1,428,571 e) $2,000,000arrow_forward
- Steph & Sons has a capital structure that consists of 20 percent equity and 80 percent debt. The company expects to report $3 million in net income this year, and 60 percent of the net income will be paid out as dividends. What is the debt structure of the capital budget?arrow_forwardDriver Corporation faces an IOS schedule calling for a capital budget of $60 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) were $98 million for the year. The firm has $200 million in assets, pays an average of 10 percent on all its debt, and faces a marginal tax rate of 34 percent. If the firm maintains a residual dividend policy and will keep its optimal capital structure intact, what will be the amount of the dividends it pays out after financing its capital budget? Group of answer choices $20.76 million $0 $59.4 million $30.0 million $23.4 millionarrow_forwardStrategic system Inc. expects to have net income of 800000 during the next year. Its target and current capital structure are 40 percent debt and 60 percent equity. The director of capital budgeting has determined that the optimal capital budget for next year is 1.2 million. If strategic uses residual dividend model to determine next year dividend payout. What is the expected payout ratio?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License