Quiz 1 & 2

6084 Words25 Pages
Question : (TCO C) Pate & Co. has a capital budget of $3,000,000. The company wants to maintain a target capital structure that is 15 percent debt and 85 percent equity. The company forecasts that its net income this year will be $3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment?
(a) $205,000
(b) $500,000
(c) $950,000
(d) $2,550,000
(e) $3,050,000
Instructor Explanation: Answer is: c
Text: pp. 570-572 - Residual Dividends, Chapter 14
The amount of new investment which must be financed with equity is:
$3,000,000 x 85% = $2,550,000.
Since the firm has $3,500,000 of net income, $950,000 = $3,500,000 - $2,550,000 will be left for dividends.
2. Question : (TCO F) The following data
…show more content…
The face value of the bond is $1000, and the semi-annual coupon payments are $30. The annual coupon rate on the bonds is $60 per bond (or 6%). The futures contract has 100 bonds.
(a) 6.32%
(b) 6.65%
(c) 7.00%
(d) 7.35%
(e) 7.72%
Instructor Explanation: Answer is: c
Chapter 23, pp. 917-923
Quote: 89-09 0.89 0.09
N: 40
PV = (0.89 + .09/32) × $1,000 = -$892.8125
FV = $1,000
PMT = $30
I/YR = 3.50%
Annual rate: I/YR × 2 = 7.00%

Quiz 1 & 2 Fi516
Grading Summary |
These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section below. | Date Taken: | 9/25/2011 |
Time Spent: | 1 h , 14 min , 19 secs |
Points Received: | 90 / 100 (90%) |
|
Question Type: | # Of Questions: | # Correct: |
Short | 6 | N/A |
|
|
Grade Details |
1. | Question : | (TCO C) Pate & Co. has a capital budget of $3,000,000. The company wants to maintain a target capital structure that is 15 percent debt and 85 percent equity. The company forecasts that its net income this year will be $3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment?
(a) $205,000
(b) $500,000
(c) $950,000
(d) $2,550,000
(e) $3,050,000 |
|
| Student Answer: | | Answer: C $950,000 Residual Dividend Model: Capital budget is $3,000,000 % Equity is 85% Net income is $3,500,000 Dividends paid = Net income - (% Equity * Capital budget) Dividends paid = $3,500,000 - (85% * $3,000,000)
Get Access