The company follows residual dividend policy

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Reference no: EM132022421

1. At the present time, water and power compnay (WPC) has 10-year noncallable bonds with a face value of $1000 that are outstanding. These bonds have a current market price of $1,278.41 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 35%. If WPC wants to issue new debt, what would be a reasonable estimate for its after tax cost of debt (rounded to two decimal places)?? _________. (option answers: 4.11%, 3.66%, 4.57%, 5.26%)

2. The projected capital budget of Munger Corporation is $5,000,000, its target capital structure is 70% debt and 30% equity, and its forecasted net income is $3,500,000. If the company follows a residual dividend policy, what total dividends, if any, will it pay out?

A. $1,000,000

B. $1,500,000

C. $2,000,000

D. $3,000,000

Reference no: EM132022421

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