Dirty Dogs Groomings optimal capital structure calls for 40 percent debt and 60 percent common equity. The

Question:

Dirty Dogs Grooming’s optimal capital structure calls for 40 percent debt and 60 percent common equity. The company’s weighted average cost of capital (WACC) is 10 percent if the amount of retained earnings generated during the year is sufficient to fund the equity portion of its capital budgeting requirements, whereas its WACC is 14 percent if new common stock must be issued. Dirty Dogs has the following independent investment opportunities:

Project A: Cost = $684,000; IRR = 16%
Project B: Cost = $640,000; IRR = 13%
Project C: Cost = $660,000; IRR = 9%

If Dirty Dogs expects to generate net income of $720,000 and it pays dividends according to the residual policy, what will its dividend payout ratio be?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Capital Budgeting
Capital budgeting is a practice or method of analyzing investment decisions in capital expenditure, which is incurred at a point of time but benefits are yielded in future usually after one year or more, and incurred to obtain or improve the... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...

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