Building Inc. earned $12 million in 2020. The company has a target D/E ratio of 1:3, and
Fantastic news! We've Found the answer you've been seeking!
Question:
Building Inc. earned $12 million in 2020. The company has a target D/E ratio of 1:3, and is considering investing in two positive NPV projects that require an initial investment of $6 million cash. What is the company’s dividend payout ratio under a residual dividend policy?
25%
50%
33.3%
36%
Transcribed Image Text:
(i) A life insurance company issues a with-profit whole life assurance policy to lives age 40 exact. The benefit is payable at the end of year of death and is equal to the basic sum assured plus any attaching bonuses. Level annual premiums are paid in advance ceasing after 20 years or on the death of the policy holder if earlier. Premium basis: Mortality AM92 select, Interest rate: 6 % p.a. Commission: 50% of the first premium 5% of the second and subsequent premiums. Expenses: Initial: £1,000 Renewal: At the start of each year the policy is in existence. £100 at the start of the first year and increases each year (starting in the second year) at a rate of 1.923% p.a. Claim: £500 inflating at 1.923% p.a. The first increase will take. place at the end of the first year. Bonus: Simple bonus rate of 2% p.a. of the basic sum assured. Bonuses are applied at the start of each year including the first year. The basic sum assured is £100,000. Show that the annual premium is approximately £2,112. [19 minutes.] (ii) Over the first 15 years of the policy the actual bonuses paid were 1% p.a. instead of 2% p.a. Calculate the gross prospective reserve at the end of the 15th policy anniversary. Prospective reserving basis: Mortality: AM92 ultimate Interest rate: 4% p.a. Commission: 5% of monthly premiums Bonus: Simple bonus rate of 2% of basic sum assured. Expenses: Renewal: £150 p.a. Claim: £750 [12 minutes. (i) A life insurance company issues a with-profit whole life assurance policy to lives age 40 exact. The benefit is payable at the end of year of death and is equal to the basic sum assured plus any attaching bonuses. Level annual premiums are paid in advance ceasing after 20 years or on the death of the policy holder if earlier. Premium basis: Mortality AM92 select, Interest rate: 6 % p.a. Commission: 50% of the first premium 5% of the second and subsequent premiums. Expenses: Initial: £1,000 Renewal: At the start of each year the policy is in existence. £100 at the start of the first year and increases each year (starting in the second year) at a rate of 1.923% p.a. Claim: £500 inflating at 1.923% p.a. The first increase will take. place at the end of the first year. Bonus: Simple bonus rate of 2% p.a. of the basic sum assured. Bonuses are applied at the start of each year including the first year. The basic sum assured is £100,000. Show that the annual premium is approximately £2,112. [19 minutes.] (ii) Over the first 15 years of the policy the actual bonuses paid were 1% p.a. instead of 2% p.a. Calculate the gross prospective reserve at the end of the 15th policy anniversary. Prospective reserving basis: Mortality: AM92 ultimate Interest rate: 4% p.a. Commission: 5% of monthly premiums Bonus: Simple bonus rate of 2% of basic sum assured. Expenses: Renewal: £150 p.a. Claim: £750 [12 minutes.
Expert Answer:
Answer rating: 100% (QA)
Dividend is the payout to the share holders of the company from its net profit Net ... View the full answer
Related Book For
Probability and Statistical Inference
ISBN: 978-0321923271
9th edition
Authors: Robert V. Hogg, Elliot Tanis, Dale Zimmerman
Posted Date:
Students also viewed these accounting questions
-
The random variable Y is the sum of the dice when two balanced dice are rolled. Its probability distribution is as follows. a. Find and interpret the mean of the random variable. b. Obtain the...
-
Two mutually exclusive projects each require an initial investment of $50,000 and should have a residual value of $10,000 after three years. The following table presents their forecast annual...
-
A company sells health insurance policies. The company has a large sales force comprised of independent contractors. Some of its sales agents, usually after a significant period of service, are...
-
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $7.20 per share on January 1, 2014. The remaining 20 percent of Devines shares also traded...
-
A national union wanted to organize the employees of Dexter Thread Mills. The company parking lot was adjacent to a public highway, separated from the highway by a 10-foot-wide grassy public...
-
Refer to the 10-K reports of Under Armour, Inc., and Columbia Sportswear that are available for download from the companion website at CengageBrain.com. Required: 1. What method of computing net cash...
-
Why might a plaintiff want to seek a provisional remedy?
-
Selected accounts from the ledgers of Lockhart Company at July 31 showed the following. InstructionsFrom the data prepare:(a) The single-column purchases journal for July.(b) The general journal...
-
what ways do servant leadership principles enhance employee engagement, organizational commitment, and long-term sustainability within multinational corporations operating in culturally diverse...
-
Unicom is a regulated utility serving Northern Illinois. The following table lists the stock prices and dividends on Unicom from 1989 to 1998. a. Estimate the average annual return you would have...
-
How would I write the code for the stack and queue in this code import java.io.File; import java.io.FileNotFoundException; import java.util.Scanner; //starter code for MazeSolver //CST-201 public...
-
Finn Company purchases all of the common stock of Murray Company for \(\$ 375,000\) when Murray Company has \(\$ 150,000\) of common stock and \(\$ 225,000\) of retained earnings. If a consolidated...
-
Describe what is meant by the "tax shield."
-
Explain what it means when a company's ROE exceeds its RNOA.
-
Discontinued operations are typically viewed as a nonoperating activity in the analysis of the balance sheet and the income statement. What is the rationale for this treatment?
-
What measure (fair value or amortized cost) is on the balance sheet for (a) trading securities, (b) available-for-sale securities, and (c) held-to-maturity securities?
-
HRM & DIVERSITY a short essay that describes the Human Resource Management (HRM) process. Explain how a manager can apply this process to ensure the effective training and performance appraisal of a...
-
A container holds 2.0 mol of gas. The total average kinetic energy of the gas molecules in the container is equal to the kinetic energy of an 8.0 10-3-kg bullet with a speed of 770 m/s. What is the...
-
5 . 5 - 2 . Let X be N(50, 36). Using the same set of axes, sketch the graphs of the probability density functions of (a) X. (b) , the mean of a random sample of size 9 from this distribution. (c) ,...
-
An insurance company sells an automobile policy with a deductible of one unit. Let X be the amount of the loss having pmf Where c is a constant. Determine c and the expected value of the amount the...
-
Let X1, X2, X3 denote a random sample of size n = 3 from a distribution with the geometric pmf (a) Compute P(X1 = 1, X2 = 3, X3 = 1). (b) Determine P(X1 + X2 + X3 = 5). (c) If Y equals the maximum of...
-
The following are cutoff values for the upper 5% of a \(t\)-distribution with either degrees of freedom 10, 50 , or 100: \(2.23,1.98\), and 2.01. Identify which value belongs to which distribution...
-
Researchers interested in lead exposure due to car exhaust sampled the blood of 52 police officers subjected to constant inhalation of automobile exhaust fumes while working traffic enforcement in a...
-
Suppose that you are interested in determining whether exposure to the organochloride DDT, which has been used extensively as an insecticide for many years, is associated with breast cancer in women....
Study smarter with the SolutionInn App