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    Chandler Communications, Albany Motors

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    Please help with the following questions.

    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%

    ---
    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%

    --
    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

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    https://brainmass.com/business/capital-structure-and-firm-value/215740

    Solution Preview

    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 ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer what will its dividend payout ratio be, what portion of its net income should it pay out as dividends this year, and what was the price of the company's stock following the stock split.

    $2.19