+1-415-670-9189
info@expertsmind.com
What will the annual dividend payout ratio be
Course:- Finance Basics
Reference No.:- EM13891860




Assignment Help
Assignment Help >> Finance Basics

This is a more difficult but informative problem. James Brodrick & Sons, Inc. is growing rapidly and, if at all possible, would like to fi- nance its growth without selling new equity. Selected information from the company's five-year financial forecast follows.

Year

1

2

3

4

5

Earnings after tax (millions)

$100

$130

$170

$230

$300

Capital investment (millions)

$175

$300

$300

$350

$440

Target book value debt-to-equity ratio (%)

120

120

120

120

120

Dividend payout ratio (%)

?

?

?

?

?

Marketable securities (millions) (Year 0 marketable securities = $200 million.)

$200

$200

$200

$200

$200

a. According to this forecast, what dividends will the company be able to distribute annually without raising new equity? What will the annual dividend payout ratio be? (Hint: remember sources of cash must equal uses at all times.)

b. Assume the company wants a stable payout ratio over time and plans to use its marketable securities portfolio as a buffer to absorb year-to-year variations in earnings and investments. Set the annual payout ratio equal to the five-year sum of total dividends paid de- termined in part (a) divided by total earnings. Then solve for the size of the company's marketable securities portfolio each year.

c. Suppose earnings fall below forecast every year. What options does the company have for continuing to fund its investments?

d. What does the pecking-order theory say about how management will rank these options?

e. Why might management be inclined to follow this pecking order?




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Finance Basics) Materials
The period of a satellite's motion around the earth is 36 hours, that is, it orbits the earth every 1.5 days. Determine the altitude of the satellite above the earth's surfa
Review "SPSS Access Instructions" for information on how to access SPSS for this assignment. Download the SPSS/PASW data set file "Module 6 SPSS Data File," and use it for thi
What is the purpose of the Government in the Sunshine Act? Was Fed Chairman Bernanke justified in evading the requirements of this act during the financial crisis of 2007-20
What is the law of one price? How is it related to the theory of purchasing power parity (PPP)?- Is PPP a theory of exchange rate determination in the long run or in the short
From the scenario, take a position for or against TFC's decision to expand to the West Coast. Provide a rationale for your response in which you cite at least two capital bu
A detailed financial analysis of the firm's prospects suggests that the Long - term EBIT will be above $304,000 annually. Taking this into consideration , which plan will ge
Initial capital is $ 5.2 million, Life of Project is  7 years, Interest rate is 15%, Fixed cost  is $ 1 million per year,  Variable cost is  $ 50 per unit (most probable),Dema
Suppose that you are the CFO of a firm contemplating a stock repurchase next quarter. You know that there are many methods of decreasing the current quarterly earnings,