Reference no: EM13727189
Residual Model, NI, Dividends, and Payouts
a) The capital budget forecast for the Santo Company is $800,000. The CFO wants to maintain a target capital structure of 40% debt and 60% equity, and it also wants to pay dividends of $500,000. If the company follows the residual dividend policy, how much income must it earn, and what will its dividend payout ratio be?
b) United Builders wants to maintain a target capital structure with 30% debt and 70% equity. Its forecasted net income is $500,000, and because of market conditions, the company will not issue any new stock during the coming year. If the firm follows the residual dividend policy, what is the maximum capital budget that is consistent with maintaining the target capital structure?
c) Brinkley Resources stock has increased significantly over the last five years, selling now for $180 per share. Management feels this price is too high for the average investor and wants to get the price down to a more typical evil, which it thinks is $30 per share. What stock split would be required to get this price, assuming the transaction has no effect on the total market value? Put another way, how many new shares should be given per one old share?
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What is the required after-tax refunding investment outlay
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What is the net advantage to leasing
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Target capital structure
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Firms dividend policy
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Residual model-dividends and payouts
: The capital budget forecast for the Santo Company is $800,000. The CFO wants to maintain a target capital structure of 40% debt and 60% equity, and it also wants to pay dividends of $500,000. If the company follows the residual dividend policy, how m..
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At the optimal debt to capital ratio
: At the optimal debt to capital ratio of 50%, RAD has an interest coverage ratio of 2.198.Estimate the cost of capital at the optimal debt ratio. (You can still use that the current regression beta of 2.1 to arrive at the new beta)
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Performing in the areas of profit-debt and asset turnover
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