Cactus Inc. is a growing firm and has $1,500,000 in earnings and excess cash of $800,000....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Cactus Inc. is a growing firm and has $1,500,000 in earnings and excess cash of $800,000. The company has had a good year and is trying to decide whether retain and reinvest the cash or pay it out to its shareholders in the form of dividends. The company has 600,000 shares outstanding and a P/E ratio of 10. If the funds are retained and reinvested at 16 percent, the company's P/E ratio would increase by 20 percent. On the other hand, If the funds are paid out in the form of dividends, it is expected that the P/E ratio will increase by 15 percent. Required: Advise the company what action they should take and provide calculations to support your recommendation. Cactus Inc. is a growing firm and has $1,500,000 in earnings and excess cash of $800,000. The company has had a good year and is trying to decide whether retain and reinvest the cash or pay it out to its shareholders in the form of dividends. The company has 600,000 shares outstanding and a P/E ratio of 10. If the funds are retained and reinvested at 16 percent, the company's P/E ratio would increase by 20 percent. On the other hand, If the funds are paid out in the form of dividends, it is expected that the P/E ratio will increase by 15 percent. Required: Advise the company what action they should take and provide calculations to support your recommendation.
Expert Answer:
Answer rating: 100% (QA)
The detailed answer for the above question is provided below After taking everything into account I ... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
A consumer electronics firm is trying to decide whether to invest $18M in a new plant for expanding its output of cell phones. Management forecasts that the new expansion will generate incremental...
-
Its raining and your trying to decide whether or not to run or walk. If you walk you'll spend longer in the rain, but if you run you'll be running into the rain and potentially get wetter. The rain...
-
A taxi company manager is trying to decide whether the use of radial tires instead of regular belted tires improves fuel economy. Twelve cars were equipped with radial tires and driven over a...
-
The Electronic Industries Association reports that about 50% of U.S. households have a camcorder. For a randomly selected sample of 800 U.S. households, use the normal approximation to the binomial...
-
Explain two specific challenges states are facing as they try to regulate the Internet.
-
When photosystem I produces NADPH, its reaction center P700 chlorophyll a loses electrons. What would happen if photosystem II did not supply new electrons to P700?
-
You are working for a company that is interested in mapping geological formations in Earth's crust by examining variations in the magnitude of the magnetic field at Earth's surface. Your assignment...
-
Jane Richards was employed as the sole crane operator of Gale Corp. and held the part-time union position of shop steward for the plant. On May 15, Richards complained to OSHA concerning what she...
-
61. The solubility product of CuS, AgS and HgS are 10 37, 104 and 1054 respectively. The solubility of these sulphides will be in the order (1) HgS> AgS > Cus (2) AgS>HgS > CuS (3) CuS AgS > HgS (4)...
-
1) The ACFE Foundation works to increase the body of anti-fraud knowledge by supporting students who wish to pursue careers in fraud examination and other fraud-related fields. Explain how your...
-
Consider the following information for YumYum Inc. as of December 31, 2015: YumYum has a service contract with a maintenance company. The contract is for cleaning services at a rate of $3,000 per...
-
Identify the kinds of information that a client should be given by his or her attorney before entering a premarital agreement.
-
Write the different methods of power transmission?
-
Explain belt drives and types of belts used in belt drives?
-
Explain why one attorney should not represent both parties to a premarital agreement.
-
Explain chain drives and rope drives, and their applications?
-
Nonverbal communication sends powerful messages through body language and facial expressions. This set of questions covers nonverbal behavior as it is typically expressed in the United States. Your...
-
A consumer magazine is evaluating five brands of trash compactors for their effectiveness in reducing the volume of typical household products that are discarded. In the experiment, each block...
-
Refer to the data provided in Exercise 9-12. Required: Prepare in general journal form the intercompany bond elimination entries required in the preparation of the December 31, 2010, December 31,...
-
To what extent can personal creditors seek recovery from partnership assets?
-
Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade. The following transactions are representative of its business dealings. The company uses a periodic inventory system and is on a...
-
Use Bluetooth to connect a simple sensor, such as an electric eye, to a database.
-
Use a temperature sensor and a motion sensor to determine the average temperature in a room when a person is present.
-
Design a database schema for a smart classroom. Identify the features of the smart classroom and design the schema to support to support those use cases.
Study smarter with the SolutionInn App