General Accounting Delta Company has 100,000 sharesoutstanding and plans to pay $1.00 pershare in dividends each quarter next year.Delta has a capital budget of $700,000 fornext year and plans to maintain its presentdebt ratio of 0.30. If earnings are expectedto be $7.20 per share, how much externalequity must Delta raise?

Step 1: Define External EquityWhen a company decides to fund a new project/ investment by equity and…

Answered: Delta Company has 100,000 shares…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 15P

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Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1 and by 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement ratio (CR) is 80%? What are the projected sales in Years 1 and 2? What are the projected amounts of net operating profit after taxes (NOPAT) for Years 1 and 2? What are the projected amounts of total net operating capital (OpCap) for Years 1 and 2? What is the projected FCF for Year 2?
How much external equity must delta raise?
The Wei Corporation expects next year's net income to be $20 million. The firm is currently financed with 45% debt. Wei has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei's dividend payout ratio be next year? Round your answer to two decimal places. %
The Leap Corporation expects next year’s net income to be P15 million. The firm’s debt ratio is currently 40%. Leap has P12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Leap's dividend payout ratio be next year?
Epsilon Corporation will be purchasing 2,000 shares of XYZ Corporation.Last year, annual dividends was P40. Forecasted dividends is P45 for thecurrent year and P51 for the next year. After which, dividends are expectedto increase by 5% each year. Assuming XYZ provides an overall annual return of 20%, how much should Epsilon Corporation pay for these shares?
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Altamonte Telecommunications has a target capital structure that consists of 50% debt and 50% equity. The company anticipates that its capital budget for the upcoming year will be $1,000,000. If Altamonte reports net income of $2,700,000 and it follows a residual dividend payout policy, what will be its dividend payout ratio? Round your answer to two decimal places. %
Sarensen Systems Inc. is expected to pay a dividend of $2.50 at year end (D), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $ 37.50 a share. The before -tax cost of debt is 7.50 %, and the tax rate is 40% . The target capital structure consists of 45% debt and 55% common equity.What is the company's WACC if all the equity used is from retained earnings?
Evelyn Incorporated is expected to pay a dividend at year end of D1 = $2.25. This dividend is expected to grow at a constant rate of 6.25% per year, and the common stock is currently valued at $75.50 per share. The before-tax cost of debt is 7.50%, and the tax rate is 21%. The target capital structure consists of 30% debt and 70% common equity. What is the company's WACC?
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Sorenson Systems, Inc. is expected to pay a dividend of $3.30 at year end (D1), the dividend is expected to grow at a constant rate of 5.5% a year, and the common stock currently sells for $37.50 a share. The before-tax cost of debt is 7.5%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity is used from retained earnings?Your answer should be between 7.36 and 12.57, rounded to 2 decimal places, with no special characters.
Express Industry’s expected net income for next year is $1.6 million. Its target, and current, capital structure is 30 percent debt and 70 percent common equity. The director of capital budgeting has determined that the optimal capital budget for next years is $2 million. Suppose Express uses the residual dividend policy to determine next year’s dividend. What is the expected dividend payout ratio? Can we use the residual dividend policy to set dividends on an annual basis? Explain why.

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