Merrillan Motors had earnings of $8 million last year. It made $5 million of investments in projects

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Merrillan Motors had earnings of $8 million last year. It made $5 million of investments in projects with positive net present values. Pat Collins owns 20% of the firm's common stock. Assume that Pat desires no change in proportional ownership of Merrillan and the firm wishes to maintain a constant debt-equity ratio. What will be Pat's action in response to
a. Merrillan's paying out dividends of $5 million?
b. Merrillan's paying out dividends of $1 million?
c. Merrillan's paying out dividends of $3 million?
Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
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Related Book For  book-img-for-question

Fundamentals of Investments

ISBN: 978-0132926171

3rd edition

Authors: Gordon J. Alexander, William F. Sharpe, Jeffery V. Bailey

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