PRINCIPLES OF CORPORATE FINANCE
13th Edition
ISBN: 9781264052059
Author: BREALEY
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 29, Problem 28PS
- a. What is the internal growth rate?
- b. What is the firm’s need for external financing this year?
- c. By how much would the firm increase its internal growth rate if it reduced its payout rate to zero?
- d. By how much would such a move reduce the need for external financing? What do you conclude about the relationship between dividend policy and requirements for external financing?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
XYZ Corp. is anticipating a sustained growth rate of 15% per year. Is it possible for them to achieve this growth rate given the following numbers. Debtequity ratio of 0.40 times Profit margin is 5.3 percent Capital Intensity Ratio is 0,75 times to answer: determine what the dividend payout ratio must be. How do you interpret the result?
XYZ Corp. is anticipating a sustained growth rate of 15%
per year. Is it possible for them to achieve this growth
rate given the following numbers. Debtequity ratio of
0.40 times Profit margin is 5.3 percent Capital Intensity
Ratio is 0.75 times To answer: determine what the
dividend payout ratio must be. How do you interpret
the result? no excel plz
Mexican Motor's market cap is 200 billion pesos. Next year's cash flow is 8.6 billion pesos. Security analyst are forecasting that free cash flow will grow by 7.60% per year for the next five years.
a. Assume that the 7.60 growth rate is expected to continue forever. What rate of return are investors expecting?
b1. Mexican Motors has generally earned about 10% on book equity (ROE= 10%) and reinvested 50% of earnings. The remaining 50% of earnings has gone to free cash flow. Suppose the company mantians the same ROE and investment rate for the long run. What will be the growth rate of earnings?
b2. What would be he rate of return?
Chapter 29 Solutions
PRINCIPLES OF CORPORATE FINANCE
Ch. 29 - Sources and uses of cash State whether each of the...Ch. 29 - Sources and uses of cash Table 29. 11 shows...Ch. 29 - Prob. 3PSCh. 29 - Sources and uses of cash and working capital...Ch. 29 - Prob. 5PSCh. 29 - Prob. 6PSCh. 29 - Cash cycle A firm is considering several policy...Ch. 29 - Collections on receivables Here is a forecast of...Ch. 29 - Collections on receivables If a firm pays its...Ch. 29 - Forecasts of payables Dynamic Futon forecasts the...
Ch. 29 - Cash budget Table 29.13 lists data from the budget...Ch. 29 - Short-term financial plans a. Paymore places...Ch. 29 - Short-term financial plans Which items in Table...Ch. 29 - Short-term financial plans Work out a short-term...Ch. 29 - Prob. 16PSCh. 29 - Prob. 17PSCh. 29 - Long-term financial plans Corporate financial...Ch. 29 - Prob. 19PSCh. 29 - Prob. 20PSCh. 29 - Long-term financial plans Construct a new model...Ch. 29 - Long-term financial plans a. Use the Dynamic...Ch. 29 - Long-term financial plans Table 29.15 summarizes...Ch. 29 - Long-term financial plans Abbreviated financial...Ch. 29 - Prob. 25PSCh. 29 - Forecast growth rate What is the maximum possible...Ch. 29 - Forecast growth rate a. What is the internal...Ch. 29 - Forecast growth rate Bio-Plasma Corp. is growing...Ch. 29 - Long-term plans Table 29.18 shows the 2019...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- You’ve collected the following information about Odyssey, Inc.:Sales =$165,000Net income = $14,800Dividends = $9,300Total debt = $68,000Total equity = $51,000What is the sustainable growth rate for the company? If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt –equity ratio? What growth rate could be supported with no outside financing at all?arrow_forwardQuestion North-Ireland Cooling’s management has made the projections shown in Table below. Use this table as a starting point to value the company. The WACC for North-Ireland Cooling is 10% and the long-run growth rate after year 4 is 7%. The company has $15,000 debt and 850 shares outstanding. Tax rate is 0.30. a) Calculate the free cash flows to the firm b) What is the firm value? c) What is the equity value? d) What is the intrinsic value of share? Show your steps in your calculations. Please answer as soon as possiblearrow_forwardA company projects a rate of return of 20% on new projects. Management plans to plow back 20% of all earnings into the firm. Earnings this year will be $6 per share, and investors expect a rate of return of 12% on stocks facing the same risks as the company.a) What is the sustainable growth rate?b) What is the stock price?c) What is the present value of growth opportunities (PVGO)?d) What is the P/E ratio?e) What would the price and P/E ratio be if the firm paid out all earnings as dividends?arrow_forward
- Majong Inc. forecasts that it will have the free cash flows shown below. The free cash flows are expected to grow by 5% per year after year 3. Year 1 2 3 CF (S million) - 20 48 54 The weighted average cost of capital is 13%. The firm has $55 million of debt and 10 million shares outstanding. What is the firm value today (in $ million)? What is a good estimate of Majong's value per share?arrow_forwardHappy Time Inc. is expected to generate the following cash flows for the next year, as shown in the table below. Happy Time now only has one outstanding debt with a face value of $110 million to be repaid in the next year. The current market value for the debt is $67 million. The tax rate is zero. If the firm is financed by common equity and debt, what is the expected value of common equity next year? Cash flow in the next year Probability Amount Economy Boom 0.3 $110 million Normal 0.4 $101 million Recession 0.3 $61 million $26.8 million $24.7 million $0 -$18.3 millionarrow_forwardFinance A firm's expected free cash flows in year 1, 2, and 3 are $30 million, $35 million, and $40 million respectively. Beyond year 3 the growth is constant at 5%. The cost of equity is 11% and the Weighted average cost of capital is 9%. What is the value of the firm in year 3 (Horizon value)?arrow_forward
- A company projects a rate of return of 20% on new projects. The executive team plan to plow back 20% of all earnings into the firm. Earnings this year will be $6 per share, and investors expect a rate of return of 12% on stocks facing the same risks as the company. 1) what is the sustainable growth rate 2) what is the stock price 3) What is the present value growth opportunities 4) what is the P/E ration 5) what would the price and PE ratio be if the firm paid out all earnings as dividends?arrow_forwardAssume that a firmʹs earnings are expected to be $11 million next year and that this number is expected to grow by 3.5% a year indefinitely. If the appropriate cost of capital is 11%, what is this firmʹs P/E ratio? 10.1 13.3 2.3 14.5arrow_forwardABC's free cash flow to equity holders (FCFE) during the current year is $130 million, which is expected to grow at a constant rate of 4% in the future. The firm's market cap rate is 10%. What is the firm's total equity value (in $ million)?arrow_forward
- Q. Western Lumber Company expects to have free cash flow in the coming year of $4.25mand is expected to grow at 4% per year thereafter. The company has an equity cost of10% and a debt cost of 6% and pays corporate tax at 30%. If the company maintains adebt-to-equity ratio of 0.50, what is the value of the interest tax shield? Please answer by providing step by step solution and explaining the whole processarrow_forwardDeltaCo has a payout ratio of 0.6 and it reinvests the remainder of earnings in new projects. If next year's EPS (EPS1) will be $7.18, new projects have expected return of 15%, and investors require a rate of return is 10.8%, what is the present value of the firm's growth opportunities? Round your answer to the nearest penny.arrow_forwardA certain company has expected next year earnings per share of $6. If the company wants to reinvest 60% of earnings into the firm, and the firm has an ROE of 10%. What is the current firm value if the firm has a required rate of return k=8%?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY