Problem 6-11 This is a more difficult but Informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible, would like to finance its growth without selling new equity. Selected Information from the company's five-year financial forecast follows. Year Earnings after tax ($ millions) Capital investment ($ millions) Target book value debt-to-equity ratio (X) Dividend payout ratio (X) Marketable securities ($ millions) (Year 8 marketable securities = $230 million) Year Dividends (millions) Divident Payout ratio (%) 1 100 170 2 130 2 230 2 122 300 130 230 ($ millions) 3 3 162 300 130 ? 230 a. According to this forecast, what dividends will the company be able to distribute annually without raising new equity and while maintaining a balance of $230 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place. 218 364 130 230 5 300 5 510 130 ? 230
Problem 6-11 This is a more difficult but Informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible, would like to finance its growth without selling new equity. Selected Information from the company's five-year financial forecast follows. Year Earnings after tax ($ millions) Capital investment ($ millions) Target book value debt-to-equity ratio (X) Dividend payout ratio (X) Marketable securities ($ millions) (Year 8 marketable securities = $230 million) Year Dividends (millions) Divident Payout ratio (%) 1 100 170 2 130 2 230 2 122 300 130 230 ($ millions) 3 3 162 300 130 ? 230 a. According to this forecast, what dividends will the company be able to distribute annually without raising new equity and while maintaining a balance of $230 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place. 218 364 130 230 5 300 5 510 130 ? 230
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Problem 6-11
This is a more difficult but Informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible, would
like to finance its growth without selling new equity. Selected Information from the company's five-year financial forecast follows.
Year
Earnings after tax ($ millions)
Capital investment ($ millions)
Target book value debt-to-equity ratio (x)
Dividend payout ratio (%)
Marketable securities ($ millions)
(Year 8 marketable securities = $230 million)
Year
Dividends (millions)
Divident Payout ratio (%)
1
1
100
170
130
?
230
2
2
122
a. According to this forecast, what dividends will the company be able to distribute annually without raising new equity and while
maintaining a balance of $230 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember
sources of cash must equal uses at all times.)
Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place.
($ millions)
3
300
130
?
230
3
162
380
130
?
230
4
218
364
130
230
5
300
510
130
?
230
5
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