This is a more difficult but informative problem. James Brodrick & Sons, Incorporated, is growing repidly 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 (X) Dividend payout ratio (X) Marketable securities (5 millions) (Year 0 marketable securities $230 million) 1 100 170 130 Year Dividends (millions) Divident Payout ratio (%) ? 230 2 122 300 130 ($ millions) 3 7 230 3 162 300 130 7 4 218 364 130 7 230 5 300 510 130 7 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 dollers and the payout ratio % to the nearest ones place. 230
This is a more difficult but informative problem. James Brodrick & Sons, Incorporated, is growing repidly 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 (X) Dividend payout ratio (X) Marketable securities (5 millions) (Year 0 marketable securities $230 million) 1 100 170 130 Year Dividends (millions) Divident Payout ratio (%) ? 230 2 122 300 130 ($ millions) 3 7 230 3 162 300 130 7 4 218 364 130 7 230 5 300 510 130 7 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 $230 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollers and the payout ratio % to the nearest ones place. 230
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Subject : Accounting
Transcribed Image Text:This is a more difficult but informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible, would like to finance its
growth without selling new equity. Selected information from the company's five-year financial forecast follows.
Year
Earnings after tax (5 millions)
Capital investment ($ millions)
Target book value debt-to-equity ratio (%)
Dividend payout ratio (X)
Marketable securities ($ millions)
(Year o marketable securities $230 million)
Year
Dividends (millions)
Divident Payout ratio (%)
1
100
170
130
?
230
2
2
122
300
130
($ millions)
?
230
3
162
300
130
7
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.
4
218
364
130
7
230
5
300
510
130
?
2:30
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education