Week 1 Homework

760 Words4 Pages
FIN-516 WEEK 1 – HOMEWORK ASSIGNMENT Problem Based on Chapter 14, Residual Dividends Middlesex Plastics Manufacturing had 2011 Net Income of $15.0 Million. Its 2012 Net Income is forecast to increase by 8%. The company’s capital structure has been 35% Debt and 65% Equity since 2010, and the company plans to maintain this capital structure in 2012. The company paid $3.0 Million cash dividends in 2011. The company is planning to invest in a major capital project in 2012. The capital budget for this project is $12.0 Million in 2012. Given: 2011 Net Income = $15,000,000 2012 Net Income = increased by 8% = ($15,000,000) + ($15,000,000 * 8%) = $16,200,000 2012 Target Equity Ratio = 65% 2011 Dividend Payout = $3,000,000…show more content…
Warrants are hybrid securities (debt/equity); and hybrids diversify a portfolio which makes it more appealing to a broader group of investors. The more diverse the portfolio, of course the better it is. Firms are aware of this fact, and the fact that the market prices are always fluctuating; thus they use warrants to attract investors for raising financing funds. The investors are willing to take the low yield bonds with warrants, because of the greater intent of possibly gaining more profit from the stock in the long run. Moreover, warrants are detachable; thus an investor can exercise/trade that bond separately from the warrant. Also, another advantage for firms needing capital is that warrants only brings funds when they are

More about Week 1 Homework

Get Access