Question: ) A company has a target capital structure that consists of 45% debt and 55% equity. The company's capital budget for next year is $5

) A company has a target capital structure that consists of 45% debt and 55% equity. The company's capital budget for next year is $5 million. The company expects net income of $4 million. The company's cost of capital is 11 percent.

a. How much will the company pay out in dividends if it follows a residual dividend policy?

b. What is the company's dividend payout ratio if it pays the dividends calculated above?

c. Is it likely the company will follow a residual dividend policy? Why or why not?

d. If the company decided to pay out $3.5 million in dividends, how much would it need to raise in equity outside the company?

e. Should the company go ahead with a project of average risk that generates a 10 percent rate of return? Why or why not?

PLEASE SHOW WORK IN EXCEL

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Show Attempt History Current Attempt in Progress At December 31, 2022, Novak Company reported the following as plant assets Land $4,470,000 Buldings $28.860,000 Less: Accumulated...

1. Altamonte Telecommunications has a target capital structure that consists of 45% debt and 55% equity. The company anticipates that its capital budget for the upcoming year will be $1,000,000. If...

Altamonte Telecommunications has a target capital structure that consists of 45% debt and 55% equity. The company anticipates that its capital budget for the upcoming year will be $1,000,000. If...

Altamonte Telecommunications has a target capital structure that consists of 45% debt and 55% equity. The company anticipates that its capital budget for the upcoming year will be $2,000,000. If...

Axel Telecommunications has a target capital structure that consists of 45% debt and 55% equity. The company anticipates that its capital budget for the upcoming year will be $1,000,000. If Axel...

Altamonte Telecommunications has a target capital structure that consists of 45% debt and 55% equity. The company anticipates that its capital budget for the upcoming year will be $1,000,000. If...

August Telecommunications has a target capital structure that consists of 45% debt and 55% equity. The company anticipates that its capital budget for the upcoming year will be $1,000,000. If August...

Altamonte Telecommunications has a target capital structure that consists of 4 5 % debt and 5 5 % equity. The company anticipates that its capital budget for the upcoming year will be $ 1 , 0 0 0 , 0...

I need help finding the dividend payout ratio. Cliff Sports Inc has a target capital structure that consists of 45% debt and 55% equity. The company anticipates that its capital budget for the...

Axel Telecommunications has a target capital structure that consists of 45% debt and 55% equity. The company anticipates that its capital budget for the upcoming year will be $1,000,000. If Axel...

Question 3.(15 points)A company has a target capital structure that consists of 45% debt and 55%equity.The company's capital budget for next year is $5 million.The company expects net income of $4...

The executive director of Mutt Rescue (MR) animal shelter has asked you to prepare an annual budget for the coming fiscal year as well as a flexible budget based on a 5 percent increase in the number...

For the purposes of accrual accounting and the matching principal, an estimate is used until the actual amounts are realized. Those estimates can be reversed or adjusted as needed. How would a new...

Provide the accounts and debit credit amounts used to record an on account sale and receipt of payment of merchandise for $10,000 with a cost of goods sold of $6,500, assuming credit terms of 2/10...

Given the performance of 4 mutual funds and S&P500 over the past 15 years in table below: Return and Risk data for 4 equity mutual funds and the market over the past 15 years Mutual Fund Average R...