Lotcash Inc's Board of Directors is looking to establish a dividend policy where 40% of net...

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Lotcash Inc's Board of Directors is looking to establish a dividend policy where 40% of net income is paid annually as a dividend. Current year earnings are $80,000,000. Current corporate tax rate is 24%. Concerns were also raised as to the impact of a 3% increase in taxes and a 3% increase in interest expense as net income would reduce by $8,000,000. You were asked to determine if there was sufficient free cash flow for the shareholders to fund the dividend payment under current conditions and then complete a sensitivity analysis for the increase in tax and interest rates. Supplementary information provided was: Sustaining capital expenditures: Growth capital expenditures: Depreciation and amortization: Debt interest at 6%: Non-cash working capital increase New debt borrowings totaled $15,000,000 $35,000,000 $5,400,000 $100,000,000 $6,500,000 40% of growth capital expenditures a) Shareholder free cash flow. b) Determine effect of cost changes and any impacts to your decision Lotcash Inc's Board of Directors is looking to establish a dividend policy where 40% of net income is paid annually as a dividend. Current year earnings are $80,000,000. Current corporate tax rate is 24%. Concerns were also raised as to the impact of a 3% increase in taxes and a 3% increase in interest expense as net income would reduce by $8,000,000. You were asked to determine if there was sufficient free cash flow for the shareholders to fund the dividend payment under current conditions and then complete a sensitivity analysis for the increase in tax and interest rates. Supplementary information provided was: Sustaining capital expenditures: Growth capital expenditures: Depreciation and amortization: Debt interest at 6%: Non-cash working capital increase New debt borrowings totaled $15,000,000 $35,000,000 $5,400,000 $100,000,000 $6,500,000 40% of growth capital expenditures a) Shareholder free cash flow. b) Determine effect of cost changes and any impacts to your decision

Answer rating: 100% (QA)

a To determine if there is sufficient free cash flow to fund the dividend payment under current conditions we need to calculate the shareholder free cash flow First lets calculate the net income after ... View the full answer