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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 (5 millions) (Year marketable securities $220 million) Year Dividends (millions) Divident Payout ratio (%) 1 1 100 170 150 ? 220 2 2 140 300 150 ? 220 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 $220 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place. ($ millions) 3 3 180 300 150 ? 220 4 245 382 150 ? 220 5 300 600 150 ? 220 5

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 (5 millions) (Year marketable securities $220 million) Year Dividends (millions) Divident Payout ratio (%) 1 1 100 170 150 ? 220 2 2 140 300 150 ? 220 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 $220 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place. ($ millions) 3 3 180 300 150 ? 220 4 245 382 150 ? 220 5 300 600 150 ? 220 5

FINANCIAL ACCOUNTING
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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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 (%) Dividend payout ratio (%) Marketable securities (5 millions) (Year marketable securities $220 million) Year Dividends (millions) Divident Payout ratio (%) 1 100 170 150 ? 220 2 2 140 300 150 ? 220 ($ millions) 3 3 180 300 150 ? 220 4 245 382 150 ? 220 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 $220 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place. 5 300 600 150 5 ? 220
Transcribed Image Text:This is a more difficult but informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible, would like to finance its growth without selling new equity. Selected information from the company's five-year financial forecast follows. Year Earnings after tax ($ millions) Capital investment ($ millions) Target book value debt-to-equity ratio (%) Dividend payout ratio (%) Marketable securities (5 millions) (Year marketable securities $220 million) Year Dividends (millions) Divident Payout ratio (%) 1 100 170 150 ? 220 2 2 140 300 150 ? 220 ($ millions) 3 3 180 300 150 ? 220 4 245 382 150 ? 220 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 $220 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. 5 300 600 150 5 ? 220
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