EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 12, Problem 9P
Summary Introduction
To determine: The weighted cost of capital.
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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%
Tong 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 %)?
Tong 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:
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 %)?
Chapter 12 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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