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 (8 millions) Capital investment (5 millions) Target book value debt-to-equity ratio (*) Dividend payout ratio (9) Marketable securities (5 millions) (Year 0 marketable securities $250 million) 1 100 175 130 7 250 2 126 300 130 7 250 (6 million 3 166 300 130 7 250 4 224 368 130 ? 250 300 530 130 7 250 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 $250 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 (8 millions) Capital investment (5 millions) Target book value debt-to-equity ratio (*) Dividend payout ratio (9) Marketable securities (5 millions) (Year 0 marketable securities $250 million) 1 100 175 130 7 250 2 126 300 130 7 250 (6 million 3 166 300 130 7 250 4 224 368 130 ? 250 300 530 130 7 250 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 $250 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:This is a more difficult but informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible, would
like to finance its growth without selling new equity. Selected information from the company's five-year financial forecast follows.
Year
Earnings after tax ($ millions)
Capital investment (5 millions)
Target book value debt-to-equity ratio (1)
Dividend payout ratio (8)
Marketable securities ($ millions)
(Year 0 marketable securities = $250 million)
Year
Dividends (millions)
Divident Payout ratio (%)
24
24
2
0
1
100
175
130
0
?
250
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 $250 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember
sources of cash must equal uses at all times.)
Note: Round dividends to the nearest million dollars and the payout ratio % to the nearest ones place.
($ millions)
3
2
126
300
130
36
21
7
250
3
166
300
130
7
250
4
224
368
130
7
250
66
30
5
5
300
530
130
78
26
7
250
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