How large should mei dividend payout ratio be next year

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1. The Mei Corporation expects next year’s net income to be $15 million. The firms’ debt to equity ratio is currently .67. Mei has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt to equity ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Mei’s dividend payout ratio be next year?

2. You are assessing the viability of operating an amusement park. The nominal revenues from ticket sales at the end of Year 1 will be $554176. They will increase by 4% per year in real terms. The only annual cost will be to lease the whole operation for $118845 per year. The leasing costs are nominal and will start at the end of Year 1. They will stay fixed in nominal terms.

Assume the inflation rate is 5% and the real discount rate is 10%. All cash flows occur at year-end. The company will not pay any taxes. The business will continue into perpetuity.

What is the NPV of the project?

a. $6921840

b. $8029703

c. $9139137

d. $8940472

e. $8267772

Reference no: EM132000834

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