Retained earnings break point
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A company is consturcting its MCC schedule. Its target capital structure is 20% debt, 20% preferred stock, and 60% common equity. Its bonds have a 12% coupon, paid semiannually, a current maturity of 20 years and sell for $1K. The firm could sell, at par, $100 preferred stock that pays a 12% annual dividend, but flotation costs of 5 percent. The company is a constant growth firm that just paid a dividend of $2.00, sells for 27.00 per share and has a growth rate of 8%. The firms' policy is to use a risk premium method to find ks. The firms' net income is expected to be 1 million, and its dividend payout ration is 40%. Flotation costs on new common stock total 10% and the firm's marginal tax rate is 40%.
What is the company's retained earnings break point?
600K
800K
1 Million
1.2 million
1.4 million
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Solution Summary
Calculates retained earnings break point.
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Answer: 1 Million
Net income= $1,000,000
Dividend payout @40%= $400,000 =$1,000,000 x 40%
Retained ...
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