Fi514 You

1.| Question :| (TCO C) Blease Inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of 60 percent debt and 40 percent equity. The company forecasts a net income of $495,000. If it follows the residual dividend policy, (a) what is its forecasted (common) dividend payout balance (in percent with 2 decimal places) and (b) how much will its adds to retained earnings be (in dollars)? |
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 | Student Answer:|  | a) Distribution= take in Income- (Target Equity Ratio * Capital Budget) = $495,000 - (0.40 * $625,000) =$245,000 Payout Ratio = Distribution/ loot Income = $245,000/ $495,000 = 49.49% b) Retained Earnings = Net Income (1- Payout Ratio) =$495,000 (1- 0.4949) =$250,024.50 b) |
 | Instructor Explanation:| text edition: pp. 570-572 - Residual Dividends, Chapter 14
Capital budget $625,000
Equity ratio 40%
Net income (NI) $495,000
Dividends paid = NI - (Equity ratio)(Capital budget) = $245,000
(a) Dividend payout ratio = Dividends paid/NI = $245,000 / $495,000 = 49.49%
(b) Adds to retained earnings = $495,000 - $245,000 = $250,000|
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 | Comments:| Adds to RE should be calculated as you did in (a), = .4(625,000) = 250,000 or as (b) above |
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 2.



| Question :| (TCO F) The side by side(p) data applies to Saunders Corporations convertible bonds:  Maturity: 10
Stock damage: $30.00
Par abide by: $1,000.00
Conversion price: $35.00
Annual coupon: 6.00%
square(a)-debt yield: 9.00%
What is the bonds straight-debt value?|
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 | Student Answer:|  | N=10 I= 9 PMT= 60 (i.e 1000*0.06) FV= 1,000 Solve for PV= ? Bonds Straight Debt value is PV= $807.47 |
 | Instructor Explanation:| Chapter 19: pp. 770-774
Inputs to find the straight-debt value: N = 10; I/YR = 9; PMT = 60; FV = 1,000. $807.47|
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 3.| Question :| (TCO B) Ang Enterprises has a levered beta of 0.95, its...If you want to get a full essay, order it on our website: Orderessay



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