This is a more difficult but informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible, wouldlike to finance its growth without selling new equity. Selected information from the company's five-year financial forecast follows.YearEarnings 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)12345100148188257300180300300390580160160160160160????P200200200200200a. According to this forecast, what dividends will the company be able to distribute annually without raising new equity and whilemaintaining a balance of $200 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remembersources of cash must equal uses at all times.)Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place.YearDividends (millions)Divident Payout ratio (%)($ millions)12345

4. Dividend Payout Ratio Calculation:Once you determine the dividend amount for each year…

Answered: This is a more difficult but…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 20P

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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 marketable securities = $220 million) Year Dividends (millions) Divident Payout ratio (%) 1 1 100 170 120 ? 220 2 2 110 ($ millions) 3 300 120 ? 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 $220 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones…
This is a more difficult but informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible, would like to finance its growth without selling new equity. Selected information from the company's five-year financial forecast follows. Year Earnings after tax ($ millions) Capital investment ($ millions) Target book value debt-to-equity ratio (%) Dividend payout ratio (%) Marketable securities ($ millions) (Year O marketable securities = $230 million) 1 100 180 120 ? 230 2 112 300 120 ? 230 3 152 300 120 ? 230 4 203 354 120 ? 230 5 300 460 120 ? 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.
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…
As the chief financial officer of Adirondack Designs, you have the following information: Next year's expected net income after tax but before new financing Sinking-fund payments due next year on the existing debt Interest due next year on the existing debt Common stock price, per share Common shares outstanding Company tax rate $ 37 million $12 million $7 million $26.5 17 million 45% a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $47 million of new debt at an interest rate of 5 percent b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.0 million c. Calculate next year's earnings per share assuming Adirondack raises the $47 million of new debt d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.2 million new shares at $22 a share instead of raising new debt. Note: Do not round…
Vijay
A financial analyst wants to compute a company's weighted average cost of capital (WACC) using the dividend discount model. The company has a before-tax cost of new debt of 9%, tax rate of 37.5%, target debt-to-equity ratio of 0.76, current stock price of $74, estimated dividend growth rate of 7% and will pay a dividend of $3.2 next year. What is the company’s WACC A. 8 percent. B. 9 percent. C. 10 percent. D. 11 percent.
(Please, use these formulas that are in the image only). A company’s capital structure consists solely of debt and common equity. It can issue debt at 15 percent interest rate, and its common stock is expected to pay a $5 dividend per share next year. The stock’s price is currently $40, its dividend is expected to grow at a constant rate of 3 percent per year; its tax rate is 30 percent and its weighted average cost of capital (WACC) is 14 percent. 1. Calculate the after-tax cost of debt and the cost of common equity. 2. What percentage of the company’s capital structure consists of common equity?
ranger Inc. has done the following projections for its balance sheet: total assets of $85 million, current liabilities of $29 million, long-term liabilities of $43 million. If the firm will require net new financing of $1 million, what is the projected amount of stockholders' equity?
As the chief financial officer of Adirondack Designs, you have the following information: Next year’s expected net income after tax but before new financing $ 51 million Sinking-fund payments due next year on the existing debt $ 26 million Interest due next year on the existing debt $ 21 million Common stock price, per share $ 33.5 Common shares outstanding 31 million Company tax rate 35% Calculate Adirondack’s times-interest-earned ratio for next year assuming the firm raises $61 million of new debt at an interest rate of 2 percent. Calculate Adirondack’s times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.0 million. Calculate next year’s earnings per share assuming Adirondack raises the $61 million of new debt. Calculate next year’s times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 2.6 million new shares at $22 a share instead of raising new debt.
Bhupatbhai
Use the following information to answer the question(s) below. Nielson Motors is currently an all equity financed firm. It expects to generate EBIT of $20 million over the next year. Currently Nielson has 8 million shares outstanding and its stock is trading at $20.00 per share. Nielson is considering changing its capital structure by borrowing $50 million at an interest rate of 8% and using the proceeds to repurchase shares. Assume perfect capital markets. Nielson's EPS if they change their capital structure is closest to: OA. $2.30 O B. $2.90 O C. $2.50 O D. $2.00
(Individual or component costs of capital) Compute the cost of capital for the firm for the following a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.84 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.02 dividend last year. The dividends are expected to grow at a rate of 4 1 percent per year into the foreseeable future. The price of this stock is now $25 56, c. A bond that has a $1,000 par value and a coupon interest rate of 11.2 percent with interest paid semiannually. A new issue would sell for $1,151 per bond and mature in 20 years. The firm's tax rate is 34 percent d. A preferred stock paying a dividend of 7.7 percent on a $107 par value. If a new issue is offered, the shares would sell for $84 71 per share a. The after-tax cost of debt debit for the firm is (Round to two decimal places)

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