Reference no: EM131561358

DuPont has a capital budget of $900,000, it wants to maintain a target capital structure of 35% debt and 65% equity, and it also wants to pay a dividend of $325,000. If DuPont follows a residual dividend policy, how much net income must it earn to meet its capital budgeting requirements and pay the dividend, all while keeping its capital structure in balance?

$940,000

$910,000

$970,000

$1,010,000

Which of the following statements is NOT CORRECT?

Bank loans to businesses are frequently made as 90-day notes which are often rolled over, or renewed, rather than repaid when they mature. However, if the borrower's financial situation deteriorates, then the bank may refuse to roll over the loan.

If one of your firm's customers is "stretching" its accounts payable, this may be a nuisance but it does not represent a real financial cost to your firm as long as the customer periodically pays off its entire balance.

With a revolving credit agreement, the firm must generally pay a fee on the unused balance of the committed funds to compensate the bank for the commitment to extend those funds.

Accruals arise automatically from a firm's operations and are "free" capital in the sense that no explicit interest must normally be paid on accrued liabilities.

Woodley Furniture Company recorded $20 million of sales in its most recently completed year. All sales were on credit that called for payment within 45 days. Woodley's account receivables over the same period of time averaged $5 million. Calculate Woodley's days sales outstanding or DSO. Note: Woodley uses a 365 day year.

60.75 days.

45.0 days.

75.5 days.

91.25 days.