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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 ($ millions) (Year 8 marketable securities = $200 million) 1 2 3 4 5 100 148 188 257 300 180 300 300 390 580 160 160 160 160 160 ? ? ? ? P 200 200 200 200 200 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 $200 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place. Year Dividends (millions) Divident Payout ratio (%) ($ millions) 1 2 3 4 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 ($ millions) Capital investment ($ millions) Target book value debt-to-equity ratio (%) Dividend payout ratio (%) Marketable securities ($ millions) (Year 8 marketable securities = $200 million) 1 2 3 4 5 100 148 188 257 300 180 300 300 390 580 160 160 160 160 160 ? ? ? ? P 200 200 200 200 200 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 $200 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place. Year Dividends (millions) Divident Payout ratio (%) ($ millions) 1 2 3 4 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 ($ millions) (Year 8 marketable securities = $200 million) 1 2 3 4 5 100 148 188 257 300 180 300 300 390 580 160 160 160 160 160 ? ? ? ? P 200 200 200 200 200 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 $200 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place. Year Dividends (millions) Divident Payout ratio (%) ($ millions) 1 2 3 4 5
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 ($ millions) (Year 8 marketable securities = $200 million) 1 2 3 4 5 100 148 188 257 300 180 300 300 390 580 160 160 160 160 160 ? ? ? ? P 200 200 200 200 200 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 $200 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place. Year Dividends (millions) Divident Payout ratio (%) ($ millions) 1 2 3 4 5
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