with changing investment opportunities, is considering a major change in dividend policy. It currently has 50...

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with changing investment opportunities, is considering a major change in dividend policy. It currently has 50 million shares outstanding and pays an annual dividend of $2 per share. The firm current and projected income statement are provided below (in millions): Projected for Current ($) Next Year ($) EBITDA 1,200 1,350 -Depreciation 200 250 EBIT 1,000 1,100 -Interest expense 200 200 EBT 800 900 -Taxes 320 360 Net income 480 540 The firm's current capital expenditure is $500 million. It is considering five projects for the next year: IRR (Using Cash Project Investment ($) Flows to Equity) Beta (%) ABCDE 190 million 0.6 12.0 200 million 0.8 12.0 200 million 1.0 14.5 200 million 1.2 15.0 100 million 1.5 20.0 The firm's current beta is 1.0 and the current Treasury bill rate is 5.5%. The firm expects working capital to in- crease $50 million both this year and the next. The firm plans to finance its net capital expenditures and work- ing capital needs with 30% debt. a. What is the firm's current payout ratio? b. What proportion of its current FCFE is it paying out as dividends? c. What would your projected capital expenditure be for next year (i.e., which of the five projects would you accept and why)? d. How much cash will the company have available to pay out as dividends next year? (What is the maximum amount the company can pay out as div- idends?) Assume a risk-free rate of 8.5% and a risk premium of 5.5%. with changing investment opportunities, is considering a major change in dividend policy. It currently has 50 million shares outstanding and pays an annual dividend of $2 per share. The firm current and projected income statement are provided below (in millions): Projected for Current ($) Next Year ($) EBITDA 1,200 1,350 -Depreciation 200 250 EBIT 1,000 1,100 -Interest expense 200 200 EBT 800 900 -Taxes 320 360 Net income 480 540 The firm's current capital expenditure is $500 million. It is considering five projects for the next year: IRR (Using Cash Project Investment ($) Flows to Equity) Beta (%) ABCDE 190 million 0.6 12.0 200 million 0.8 12.0 200 million 1.0 14.5 200 million 1.2 15.0 100 million 1.5 20.0 The firm's current beta is 1.0 and the current Treasury bill rate is 5.5%. The firm expects working capital to in- crease $50 million both this year and the next. The firm plans to finance its net capital expenditures and work- ing capital needs with 30% debt. a. What is the firm's current payout ratio? b. What proportion of its current FCFE is it paying out as dividends? c. What would your projected capital expenditure be for next year (i.e., which of the five projects would you accept and why)? d. How much cash will the company have available to pay out as dividends next year? (What is the maximum amount the company can pay out as div- idends?) Assume a risk-free rate of 8.5% and a risk premium of 5.5%.