Driver Corporation has plans 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 35 percent. If the firm maintains a residual distribution policy (with all distributions in the form of dividends) and will keep its optimal capital structure intact, what will be the amount of the dividends it pays out after financing its capital budget?

Driver Corporation has plans 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 35 percent. If the firm maintains a residual distribution policy (with all distributions in the form of dividends) and will keep its optimal capital structure intact, what will be the amount of the dividends it pays out after financing its capital budget?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 24P

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Driver 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 million
Tong foong Co. Ltd has decided that its capital budget during the coming year will be $20 million ($20,000,000) , the optimal capital structure is 60% equity and 40% debt , its earnings before interest and taxes (EBIT) are projected to be $34,667 million for the year . the company has $200,000,000 of assets, its average interest rate on outstanding debts is 10% and its tax rate is 40%. d. 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%) ?
Driver Corporation faces an IOS schedule calling for a capital budget of $60 million. Its optimal capital structure is 60% equity and 40% 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% 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 its dividend payout be after financing its capital budget? Calculation needed.
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 %)?
The projected capital budget of Kandell Corporation is $725,000, its target capital structure is 60% debt and 40% equity, and its forecasted net income is $725,000. If the company follows a residual dividend policy, what total dividends, if any, will it pay out?
Mortal Inc. expects to have a capital budget of $575,000 next year. The company wants to maintain a target capital structure with 35% debt and 65% equity, and its forecasted net income is $500,000. If the company follows the residual dividend model, how much in dividends, if any, will it pay? a. $111,100 b. $126,250 c. $132,563 d. $118,675 e. $113,625 Portland Plastics Inc. has the following data. If it follows the residual dividend model, what is its forecasted dividend payout ratio? Capital budget $13,500 % Debt 40% Net income (NI) $13,650 a. 42.29% b. 44.73% c. 49.20% d. 40.66% e. 32.53%
Tong foong Co. Ltd has decided that its capital budget during the coming year will be $20 million ($20,000,000) , the optimal capital structure is 60% equity and 40% debt , its earnings before interest and taxes (EBIT) are projected to be $34,667 million for the year . the company has $200,000,000 of assets, its average interest rate on outstanding debts is 10% and its tax rate is 40%. Required ; a. how much debt is outstanding (in dollars) and what is the cost of debtfor the period ? b. compute the earnings after tax ( net income) c. how much equity is required for the coming year capital budget ? d. 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%) ?
Brock 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 (with all distributions in the form of dividends), and anticipates a dividend payout ratio of 40 percent. What is the size of the company’s capital budget? $ 600,000 $ 857,143 $1,000,000 $1,428,571 $2,000,000
Banerjee Inc. wants to maintain a capital structure with 30 percent debt and 70 percent common equity. Its forecasted net income is $ 535,000, and its board of directors has decreed that no new stock to be issued during the coming year. If the firms follows the residual dividend policy, what is the maximum capital budget that is consistent with maintaining its capital structure ?
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 %)?
Buena 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,…
Buena 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,…