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 (5 millions) Capital investment ($ millions) Target book value debt-to-equity ratio (%) Dividend payout ratio (%) Marketable securities ($ millions) (Year e marketable securities $200 million) Year 1 100 Dividends (millions) 180 130 200 2 118 300 130 7 200 (5 millions). 3 158 300 130 ? 200 4 212 360 130 7 200 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 $200 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place. 300 490 130 200
This is a more difficult but informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible, would like to finance its growth without selling new equity. Selected information from the company's five-year financial forecast follows. Year Earnings after tax (5 millions) Capital investment ($ millions) Target book value debt-to-equity ratio (%) Dividend payout ratio (%) Marketable securities ($ millions) (Year e marketable securities $200 million) Year 1 100 Dividends (millions) 180 130 200 2 118 300 130 7 200 (5 millions). 3 158 300 130 ? 200 4 212 360 130 7 200 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 $200 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. 300 490 130 200
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question

Transcribed Image Text: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 (5 millions)
Capital investment (5 millions)
Target book value debt-to-equity ratio (%)
Dividend payout ratio (%)
Marketable securities (5 millions)
(Year e marketable securities $200 million)
Year
Dividends (millions)
Divident Payout ratio (%)
1
100
180
130
2
?
200
2
118
300
130
7
200
($ millions)
3
3
158
300
130
>
200
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 $200 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.
4
212
360
130
?
200
5
300
490
130
7
200
5
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