Tong foong Co. Ltd has decided that its capital budget during the coming year will be $20 million ($20,000,000) , the optimal capital structure is 60% equity and 40% debt , its earnings before interest and taxes (EBIT) are projected to be $34,667 million for the year . the company has $200,000,000 of assets, its average interest rate on outstanding debts is 10% and its tax rate is 40%. Required ; a. how much debt is outstanding (in dollars) and what is the cost of debtfor the period ? b. compute the earnings after tax ( net income) c. how much equity is required for the coming year capital budget ? d. if the company follows the residual dividend policy and maintains the same capital structure, what will its dividend payout (in $) and the dividend payout ratio ( in%) ?

Tong foong Co. Ltd has decided that its capital budget during the coming year will be $20 million ($20,000,000) , the optimal capital structure is 60% equity and 40% debt , its earnings before interest and taxes (EBIT) are projected to be $34,667 million for the year . the company has $200,000,000 of assets, its average interest rate on outstanding debts is 10% and its tax rate is 40%. Required ; a. how much debt is outstanding (in dollars) and what is the cost of debtfor the period ? b. compute the earnings after tax ( net income) c. how much equity is required for the coming year capital budget ? d. if the company follows the residual dividend policy and maintains the same capital structure, what will its dividend payout (in $) and the dividend payout ratio ( in%) ?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 9P

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Tong foong Co. Ltd has decided that its capital budget during the coming year will be $20 million ($20,000,000) , the optimal capital structure is 60% equity and 40% debt , its earnings before interest and taxes (EBIT) are projected to be $34,667 million for the year . the company has $200,000,000 of assets, its average interest rate on outstanding debts is 10% and its tax rate is 40%. d. if the company follows the residual dividend policy and maintains the same capital structure, what will its dividend payout (in $) and the dividend payout ratio ( in%) ?
Tong Foong Co. Ltd. has decided that its capital budget during the coming year will be $20 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) are projected to be $34.667 million for the year. The company has $200 million of assets; its average interest rate on outstanding debt is 10 percent; and its tax rate is 40 percent. Required: How much debt is outstanding (in dollars) and what is the cost of the debt (in dollars) for the period? Compute the Earnings After Tax (Net Income)? How much equity is required for the coming year capital budget? If the company follows the residual dividend policy and maintains the same capital structure, what will its dividend payout (in $) and the dividend payout ratio (in %)?
Tong Foong Co. Ltd. has decided that its capital budget during the coming year will be $20 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) are projected to be $34.667 million for the year. The company has $200 million of assets; its average interest rate on outstanding debt is 10 percent; and its tax rate is 40 percent. (i). How much debt is outstanding (in dollars) and what is the cost of the debt (in dollars) for the period? (ii). Compute the Earnings After Tax (Net Income)? (iii). How much equity is required for the coming year capital budget? (iv). If the company follows the residual dividend policy and maintains the same capital structure, what will its dividend payout (in $) and the dividend payout ratio (in %)?
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