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# Chandler Communications, Albany Motors

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Your company has decided that its capital budget during the coming year will be \$20 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) are projected to be \$34.667 million for the year. The company has \$200 million of assets; its average interest rate on outstanding debt is 10 percent; and its tax rate is 40 percent. If the company follows the residual dividend policy and maintains the same capital structure, what will its dividend payout ratio be?

a 15%
b 20%
c 25%
d 30%
e 35%

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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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Albany Motors recently completed a 3-for-1 stock split. Prior to the split, the company had 10 million shares outstanding and its stock price was \$150 per share. After the split, the total market value of the company?s stock equaled \$1.5 billion. What was the price of the company's stock following the stock split?

a. \$ 15

b. \$ 45

c. \$ 50

d. \$150

e. \$450