This is a more difficult but informative problem James Brodrick Sons, Incorporated, is growing rapidly and, if at all possible, would like to finance its growth without selling new equity Selected information from the companys five year financial forecast follows Year 1 2 3 4 5 Earnings after tax ($ millions) 100 128 168 227 300 Capital investment ($ millions) 170 300 300 370 540 Target book value debt to equity ratio ( ) 140 140 140 140 140 Dividend payout ratio ( ) Marketable securities ($ millions) 200 200 200 200 200 (Year 0 marketable securities $200 million) a According to this forecast, what dividends will the company be able to distribute annually without raising new equity and while maintaining a balance of $200 million in marketable securities What will the annual dividend payout ratio be (Hint Remember sources of cash must equal uses at all times )

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Question: This is a more difficult but informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible, would like to finance

This is a more difficult but informative problem. James Brodrick & Sons, Incorporated, is growing rapidly and, if at all possible, would like to finance its growth without selling new equity. Selected information from the companys five-year financial forecast follows.

Year	1	2	3	4	5
Earnings after tax ($ millions)	100	128	168	227	300
Capital investment ($ millions)	170	300	300	370	540
Target book value debt-to-equity ratio (%)	140	140	140	140	140
Dividend payout ratio (%)	?	?	?	?	?
Marketable securities ($ millions)	200	200	200	200	200
(Year 0 marketable securities = $200 million)

a. According to this forecast, what dividends will the company be able to distribute annually without raising new equity and while maintaining a balance of $200 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.)

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