Problem Based on Chapter 14, Residual Dividends
Middlesex Plastics Manufacturing had 2011 Net Income of $15.0 Million. Its 2012 Net Income is forecast to increase by 8%. The company’s capital structure has been 35% Debt and 65% Equity since 2010, and the company plans to maintain this capital structure in 2012. The company paid $3.0 Million cash dividends in 2011. The company is planning to invest in a major capital project in 2012. The capital budget for this project is $12.0 Million in 2012. 1. If Middlesex increases its cash dividends in 2012 at the same rate of growth as its Net Income rate, what will be the total 2012 dividend payout in Dollars? 3,000,000 *1.08= 3,240,000
2. What is the 2012 dividend payout ratio if the company increases its dividends at 8%? Net income increased by 8 percent would be 15,000,000*1.08=16,200,000 Payout ratio = 3,240,000/16,200,000=.2
20%
3. If the company follows a residual dividend policy, and maintains its 35% Debt level in its capital structure, and invests in the $12.0 Million capital budget in 2012, what would be the Residual Dividend level (in Dollars) in 2012? What would be this Residual Dividends payout ratio? .65*12,000,000=7,800,000
16,200,0007,800,000=8,400,000
Residual Dividend level= $8,400,000
8,400,000/16,200,000=.52
Residual Dividends payout ratio=52%
4. How much additional capital (Debt and/or Equity) will the company have to raise from outside sources in 2012 if it invests in this capital project, and follows a residual dividend policy? .35*12,000,000= 42,000,000
5. What would be the prudent dividend policy for 2012?: Pay dividends at the current dividend growth rate of 8%, or pay the residual dividend amount. Pay dividends at the current dividend growth rate
Problem 193 (Chapter 19) on Warrants
This problem is posted on page 781 of the textbook.
(19–3)
Warrants
Maese Industries Inc. has warrants outstanding that permit...
...FIN516WEEK1 – HOMEWORKASSIGNMENT
Problem Based on Chapter 14, Residual Dividends
Middlesex Plastics Manufacturing had 2011 Net Income of $15.0 Million. Its 2012 Net Income is forecast to increase by 8%. The company’s capital structure has been 35% Debt and 65% Equity since 2010, and the company plans to maintain this capital structure in 2012. The company paid $3.0 Million cash dividends in...
...Question 1
Your finance text book sold 53,250 copies in its first year. The publishing company expects the sales to grow at a rate of 20 percent for the next three years, and by 10 percent in the fourth year. Calculate the total number of copies that the publisher expects to sell in year 3 and 4. (If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answers to the nearest whole number.)
Number of copies sold...
...FIN 534 Quiz 1Week1
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Question 1
You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the...
...FIN516WEEK1 – HOMEWORKASSIGNMENT
Problem Based on Chapter 14, Residual Dividends
Middlesex Plastics Manufacturing had 2011 Net Income of $15.0 Million. Its 2012 Net Income is forecast to increase by 8%. The company’s capital structure has been 35% Debt and 65% Equity since 2010, and the company plans to maintain this capital structure in 2012. The company paid $3.0 Million cash dividends in...
...Ashley Scott – Week ONE Homework
Problem Based on Chapter 14, Residual Dividends
1. If Middlesex increases its cash dividends in 2012 at the same rate of growth as its Net Income rate, what will be the total 2012 dividend payout in Dollars?
3,000,000 x (1 + .08)
3,000,000 x 1.08 = $3,240,000
2. What is the 2012 dividend payout ratio if the company increases its dividends at 8%?
Net income increased by 8% would be...
...FIN516WEEK1 – HOMEWORKASSIGNMENT
Steven Kelley 5/8/13
Problem Based on Chapter 14, Residual Dividends
Middlesex Plastics Manufacturing had 2011 Net Income of $15.0 Million. Its 2012 Net Income is forecast to increase by 8%. The company’s capital structure has been 35% Debt and 65% Equity since 2010, and the company plans to maintain this capital structure in 2012. The company paid $3.0 Million...
...Chapter 11 Why are financial markets important to the health of the economy?
Because they channel funds from those who do not have a productive use for them to those who do, thereby resulting in higher economic efficiency.
2 When interest rates rise, how might businesses and consumers change their economic behavior?
Businesses would cut investment spending because the cost of financing this spending is now higher, and consumers would be less likely to...
... 1.  Question :  (TCO C) Blease Inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of 60 percent debt and 40 percent equity. The company forecasts a net income of $475,000. If it follows the residual dividend policy, what is its forecasted dividend payout ratio?
(a) 40.61%
(b) 42.75%
(c) 45.00%
(d) 47.37%
(e) 49.74% 

 Student Answer:   (d) 47.37 Equity required (Residual income) = $625,000*40% = $250,000 Dividend...