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Question
The Wagner Company tries to follow a pure "residual" dividend policy. Earnings and dividends last year were $100 million and $20 million respectively. Anticipated earnings for this year are $80 million. The company is financed completely with common equity. The required rate of return on retained earnings is 15 percent and the cost of new equity is 16 percent. If Wagner has $70 million of investment projects having expected returns greater than 15 percent, determine the total amount of dividends Wagner should pay.a. None
b. $10 million
c. $20 million in dividends and raise needed investment funds externally
d. $80 million in dividends and raise needed investment funds externally
Answer
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Related questions
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a. 6.25%
b. 26.25%
c. 31.25%
d. 5.00%
Q:
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Q:
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Q:
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Q:
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b. multiplied by 1 plus the percentage stock dividend rate
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Q:
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Q:
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b. retained earnings
c. contributed capital in excess of par
d. common stock at par
Q:
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a. register with the Securities Exchange Commission (SEC)
b. have assets in excess of $500,000
c. have 10 continuous profitable quarters
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Q:
Most states limit dividend policy by requiring
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b. that dividends may only be paid out of retained earnings
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Q:
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c. Milton Friedman
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Q:
Explain the pecking order theory.
Q:
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Q:
Sulzar's capital structure consists only of common stock (20 million shares), but the firm is planning a major expansion which will require $100 million of new capital. Sulzar has a choice of obtaining the needed capital through the sale of 5 million shares of common stock at $20 per share or the sale of $100 million of first mortgage bonds that would have a coupon rate of 9%. If Sulzar has a marginal tax rate of 40%, calculate the EBIT-EPS indifference point.
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Q:
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a. the indifference point increases
b. the indifference point decreases
c. the indifference point does not change
d. cannot be determined
Q:
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d. $0.744 million
Q:
The optimal capital structure is a function of ____.
a. corporate income taxes
b. financial distress costs
c. agency costs
d. All of these are correct.
Q:
Due to both financial distress and agency costs, a firm should have a capital structure that
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b. contains all equity
c. contains both debt and equity
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Q:
As more debt is added to the capital structure of a firm, the cost of debt capital
a. initially rises slowly, then falls beyond some point
b. increases at a steady rate throughout the entire range
c. beyond some point, becomes greater than the cost of equity
d. initially rises slowly, then increases rapidly beyond some point
Q:
Perfect capital markets imply the following:
a. there are no transactions costs for buying and selling securities
b. relevant information is readily available for individuals and is costless to obtain
c. all investors can borrow and lend at the same rate
d. All of these answers are correct.
Q:
Two prominent finance researchers (Modigliani and Miller) showed that
a. the firm's optimal capital structure consists of approximately equal proportions of debt and equity
b. the value of the firm is independent of its capital structure in perfect capital markets with no income taxes
c. the firm's cost of capital is minimized when its capital structure consists of approximately equal proportions of debt and equity
d. the value of the firm is independent of its capital structure in perfect capital markets with income taxes
Q:
Chirping Charlie Canary Farms has fixed operating costs of $10,000. It is trying to determine its breakeven point in dollars for its special bird seed. The sale price for each bag of bird seed is $25 and its variable cost per bag is $15. The firm's operating breakeven point in dollars is:
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b. $16,667
c. $6,250
d. $25,000
Q:
Borkstran has sales of $7.8 million, a variable cost ratio of 0.6, EBIT of $1.1 million, and a degree of combined leverage of 3.4. What is Borkstran's degree of financial leverage?
a. 1.20
b. 0.73
c. 2.29
d. 0.84
Q:
Kenzel has an EPS of $4.20 and sales are $9 million. If the firm has a degree of operating leverage of 4.0 and a degree of financial leverage of 5.2, forecast EPS if the firm expects a 4% sales decline.
a. $0.71
b. $3.49
c. $4.03
d. $3.33