+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
What is the expected value of each project's annual after tax cash flow? Justify your answers and identify any conflicts between the IRR and the NPV and explain why these co
He has decided to use the rate of change in the Consumer Price Index as a proxy for the inflationary expectations of investors. That annualized rate now stands at 3%. On the b
Apocalyptica Corporation pays a constant $7.25 dividend on its stock. The firm will maintain this dividend for the next nine years and will then cease paying dividends forever
Find some figures to describe this growth. Now forecast the future demand for electricity. How accurate are your results? What other factors should be taken into account? Wh
From the e-Activity, determine key reasons why a multinational corporation might decide to borrow in a country such as Brazil, where interest rates are high, rather than in
Determine the pretax and after-tax profit margins for the construction company in Figures 6-1 and 6-2. What insight does this give you into the company's financial operations?
(a) Identify the null hypothesis and the alternative hypothesis. (b) Determine the test statistic. Show all work; writing the correct test statistic, without supporting wo
In your opinion, what are the limitations of the project management life cycle theory? How would you improve the project management plans of two other project managers if you