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Bankston Corporation forecasts that if all of its existing financial policies are adhered to, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would reduce its need to issue new common stock?
reducing the amount of short-term bank debt in order to increase the current ratio
increasing the percentage of debt in the target capital structure
increasing the proposed capital budget
increasing the dividend payout ratio for the upcoming year
Thomas Brothers is expected to pay a $2.3 per share dividend at the end of the year (that is, D1 = $2.3). The dividend is expected to grow at a constant rate of 3% a year. The required rate of return on the stock, rs, is 15%. What is the stock's curr..
Firm is expected to pay a dividend of $2.95 next year and $3.10 the following year. Financial analysts believe the stock will be at their price target of $60 in two years. Compute the value of this stock with a required return of 12.9 percent.
Given a MPT with a starting pool balance of $1,000,000, whose underlying collateral is a group of 10 year FRMs with annual payments, interest rate on the underlying mortgages=10%, servicing fees=0.5%, and prepayment projected to be 10% annually, what..
If a project is assigned a required rate of return equal to zero, then:
Assume that the returns from an asset are normally distributed. The average annual return for this asset over a specific period was 17.5 percent and the standard deviation of those stocks in this period was 43.89 percent. What is the approximate prob..
A company manufactures a product using two machine cells. Each cell has a design capacity of 250 units per day and an effective capacity of 230 units per day. At present, actual output averages 200 units per cell, but the manager estimates that produ..
Calculating Cash Flows. Weiland Co. shows the following information on its 2014 income statement: sales = $167,000; costs = $88,600; other expenses = $4,900; depreciation expense = $11,600; Calculating Cash Flows. What is the 2014 operating cash flo..
You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $84,000 per year for the next two years, or you can have $73,000 per year for the next two years, along wi..
Moby Dick Corporation has sales of $4,635,480 income tax of $400,651; the selling general and administrative expenses of $294,228; depreciation of $395,852; cost of goods of $2,543,550; and interest expense of $188,723. Calculate the amount of the fi..
Why is the capital budgeting decision crucial and important for a firm? State why the capital budgeting errors are so costly? Suntex Berhad is considering a major expansion of its production line and has estimated the following free cash flows associ..
If deflation occurred, would the nominal interest rates on these bonds be higher or lower than the real interest rates? Briefly explain.
Friendly’s Quick Loans, Inc., offers you $6.50 today but you must repay $8.35 when you get your pay check in one week (or else). What is the effective annual return Friendly’s earns on this lending business?
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