Reference no: EM131357756
(Dividend policy and free cash flow to equity)
NanoSoft is a software firm that has never paid a dividend before but its boards of directors is considering whether to initiate dividends and if so, how much to pay. You have collected the following information on the firm: - The most recent year’s income statement is as follows:
Revenues $ 500 million
- Cost of goods sold $ 350 million (includes depreciation of $ 40 million)
EBIT $ 150 million
- Interest expense $ 10 million
Taxable income $ 140 million
- Taxes $ 42 million
Net Income $ 98 million
- The revenues, operating income and depreciation are expected to grow 8% a year for the next 3 years, but the tax rate for the company will increase to 40% of taxable income.
- The non-cash working capital is currently 20% of revenues and this ratio is expected to not change over the next 3 years.
- The firm reported gross capital expenditures of $ 50 million last year, a level that will be maintained for the next 3 years.
- The firm has an old fixed rate bank loan of $ 100 million (which is the firm’s only debt) and it is expected to pay off the entire loan at the end of year 2. The firm does not plan any new borrowings for the next 3 years.
- The firm is planning one major acquisition next year and it expects the acquisition to cost $ 50 million. There are no other acquisitions planned for the next 3 years.
- The current cash balance of the firm is $ 75 million.
Questions:
a. Estimate the FCFE for the firm each year for the next 3 years.
b. Now assume that the firm wants to initiate dividend payments. Assuming that it wants to end up with a cash balance of $ 50 million at the end of the third year, what is the total amount of dividends that the company would be able to pay out to it’s stockholders?
|
Company can afford to spend for the new compressor
: A local meat packaging facility is considering two proposals for improving its refrigeration compartment. Proposal A would involve re-conditioning the compressor and patching the deteriorated insulation for a cost of $6,000. Determine the amount that..
|
|
Choice of an epistemological perspective or stance
: In what ways does the choice of an epistemological perspective or stance influence the formulation of a management research problem?
|
|
Provides an overview of decision support systems
: Historical Overview of Decision Support Systems provides an overview of decision support systems. A Brief History of Decision Support Systems by D.J. Power (Editor, DSSRe-sources.com) describes history of decision support systems.
|
|
Choose four specific events related to your topic
: Determining the direction of your project by writing a thesis statement.Choosing the events that you will discuss in your Final Project.Locating the sources that you need for your Final Project.Choose four specific events related to your topic.Locate..
|
|
Dividend policy and free cash flow to equity
: NanoSoft is a software firm that has never paid a dividend before but its boards of directors is considering whether to initiate dividends and if so, how much to pay. Now assume that the firm wants to initiate dividend payments. Assuming that it want..
|
|
Create a realistic budget for the program
: Explain why each aspect of the program is important to the management of the program. Show critical thinking in your explanations - Include an argument for the creation of the program. In your argument, define the benefits of participation in the p..
|
|
Derive a trend equation
: The following gives the number of accidents that occurred on Florida State Highway 101 during the past 4 months: Forecast the number of accidents that will occur in May, using least-squares regression to derive a trend equation
|
|
Determine the rate of return on the after tax cash flows
: NO SPREADSHEET SOLUTION ALLOWED, ALL WORK MUST BE DONE BY HAND, READ CAREFULLY. A retired couple plan to purchase a rental property for $400,000. It is expected that the annual income before taxes will vbe $31,000 for the next 8 years. Determine the ..
|
|
What marketing strategy or strategies has aldi has adopted
: What marketing strategy or strategies has Aldi has adopted since it was created? For Australian-based students, you might like to focus your analysis on the Aldi Australia experience.
|