Calculating expected dividend payout ratio

Reference no: EM1368611

Flavortech Corporation expects EBIT of $2,000,000 for the current year. The firm's capital structure consists of 40 percent debt and 60 percent equity, and its marginal tax rate is 40 percent. The cost of equity is 14 percent, and the company pays a 10 percent rate on its $5,000,000 of long-term debt. One million shares of common stock are outstanding. For the next year, the firm expects to fund one large positive NPV project costing $1,200,000, and it will fund this project in accordance with its target capital structure. If the firm follows a residual distribution policy (with all distributions in the form of dividends) and has no other projects, what is its expected dividend payout ratio?

Reference no: EM1368611

Questions Cloud

Explain charlie jones a fireman for boulder county : Explain Charlie Jones, a fireman for Boulder County, Colorado, saw an ad for the vacation of his dreams in the local, "Boulder County Gazette."

Effects of cost reduction : Last year, Urbana Corporation had $197,500 of assets, $307,500 of sales, $19,575 of net income, and a debt-to-total assets ratio of 37.5 percent.

Give algorithm-correctness proof-time complexity for tree : Determine the minimum number of nodes in tree to remove so that the tree is separated into subtrees of sizes at most k. Give the algorithm, the correctness proof and the time complexity.

Explain what is the total cost for using air carrier : Explain What is the total cost for using motor carrier transportation and What is the total cost for using air carrier transportation and Which alternative should GasBag use?

Calculating expected dividend payout ratio : Flavortech Corporation expects EBIT of $2,000,000 for the current year. The firm's capital structure consists of 40% debt and 60% equity, and its marginal tax rate is 40%.

Calculate the proportion to get a desired expected return : If the market has an expected return of 10 percent, a standard deviation of 20% and the risk-free rate is 4 percent, what proportion of your money should be invested in the market if you want an expected return of 16%?

Write program which prompts for boiling point of substance : Write program which prompts user for observed boiling point of substance in Centigrade and identifies substance if observed boiling point is within 5% of the expected boiling point.

Discuss two aspects of firms credit policy : Identify and discuss two aspects of firms' credit policy. Identify one difference in the credit policies of different company and describe why this difference may be important to consumers.

Explain how to upgrade bus topology lan : You are asked to upgrade bus topology LAN at a friend's house to a star topology LAN. your friend wishes to connect three computers and printer and use Ethernet access method.

User Account

All Pages