Finance: Evalulate Proposals, Payback, NPV, IRR, Optimal Capital
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A firm is evaluating a proposal which has an initial investment of $35,000 and has cash flows of $10,000 in year 1, $20,000 in year 2, and $10,000 in year 3. The payback period of the project is
A) 1 year.
B) 2 years.
C) between 1 and 2 years.
D) between 2 and 3 years.
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From the information below, select the optimal capital structure for Minnow Entertainment Company.
a) Debt = 40%; Equity = 60%; EPS = $2.95; Stock price = $26.50.
b) Debt = 50%; Equity = 50%; EPS = $3.05; Stock price = $28.90.
c) Debt = 60%; Equity = 40%; EPS = $3.18; Stock price = $31.20.
d) Debt = 80%; Equity = 20%; EPS = $3.42; Stock price = $30.40.
e) Debt = 70%; Equity = 30%; EPS = $3.31; Stock price = $30.00.
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Chandler Communications'CFO has provided the following information:
The company's capital budget is expected to be $5,000,000.
The company's target capital structure is 70 percent debt and 30 percent equity.
The company's net income is $4,500,000.
If the company follows a residual dividend policy, what portion of its net income should it pay out as dividends this year?
A) 33.33%
B) 40.00%
C) 50.00%
D) 60.00%
E) 66.67%
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Redwood 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%
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Solution Summary
This solution identifies the correct answer and provides brief justifications on the topics of proposals, payback, NPV, IRR, optimal capital structure and other capital budgeting topics.
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A firm is evaluating a proposal which has an initial investment of $35,000 and has cash flows of $10,000 in year 1, $20,000 in year 2, and $10,000 in year 3. The payback period of the project is
A) 1 year.
B) 2 years.
C) between 1 and 2 years.
D) between 2 and 3 years.
Answer:
D) between 2 and 3 years.
Assuming uniform accrual of cash flows in Year 3, the payback period is 2.5 years.
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From the information below, select the optimal capital structure for Minnow Entertainment Company.
a) Debt = 40%; Equity = 60%; EPS = $2.95; Stock ...
Purchase this Solution
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