Answered: dividends per share if the firm used…

dividends per share if the firm used 20% debt financing and the firm followed a strict residual dividend policy? $3.65 per share $2.92 per share $1.05 per share $3.25 per share

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A firm has cash flow from operations of $138 million and needs $125 million for investment purposes, leaving $13 million of free cash flow. Assume the firm has 13 million shares outstanding and its shares are presently trading at $41 per share. How much would it pay out in dividends per share if the firm used 20% debt financing and the firm followed a strict residual dividend policy?

$3.65 per share

$2.92 per share

$1.05 per share

$3.25 per share

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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