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Capital expenditures

1) Blake Systems follows a strict residual dividend policy. The company estimates that its capital expenditures this year will be $40 million, its net income will be $30 million, and its target capital structure is 60 percent equity and 40 percent debt. What will be the company's dividend payout ratio?
a. 80%
b. 60%
c. 40%
d. 20%
e. 15%

2) Jones corp forecasts that its earnings per share will be $3.00 this year. The company has 500 million shares of stock outstanding. Jones corp estimates that its capital budget for the upcoming year will be $800 million, and it is committed to funding the entire capital budget. The company is also committed to maintaining its dividend of $2.00 per share, and it wants to avoid issuing new common stock. The company's capital structure consists of debt and common stock. Given the above constraints, what portion of the $800 million capital budget will be funded with debt?
a. 53.13%
b. 46.02%
c. 40.00%
d. 6.25%
e. 37.50%

Solution Preview

1) Capital expenditures = $40 million
Target capital structure is 60 percent equity and 40 percent debt
Amount of equity capital required = 40*60%=24 million
Net ...

Solution Summary

Capital expenditures are encompassed.

$2.19