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%) ?
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
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%) ?
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