(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 paid = $475,000 - $250,000 = $225,000 Dividend payout ratio = 225000/475000 = 47.37% | | Instructor Explanation: | Answer is: d

Text: pp. 570-572 - Residual Dividends, Chapter 14

Capital budget $625,000

Equity ratio 40%

Net income (NI) $475,000

Dividends paid = NI - (Equity ratio)(Capital budget) $225,000

Dividend payout ratio = Dividends paid/NI 47.37% | | | | Points Received: | 10 of 10 | | Comments: | | | | 2. | Question : | (TCO F) The following data applies to Saunders Corporation's convertible bonds:

Maturity: 10

Stock price: $30.00

Par value: $1,000.00

Conversion price: $35.00

Annual coupon: 5.00%

Straight-debt yield: 8.00%

What is the bond's conversion value?

(a) $698.15

(b) $734.89

(c) $773.57

(d) $814.29

(e) $857.14 | | | Student Answer: | | (e) $857.14 Conversion ratio = Par value / Conversion Price= 28.5714 =1000/35 Current share price= $30.00 Therefore, conversion value of the bond= $857.14 =28.5714x30 | | Instructor Explanation: | Answer is: e

Chapter 19: pp. 770-774

Conversion value = Conversion ratio x Market price of stock = $857.14 | | | | Points Received: | 10 of 10 | | Comments: | | | | 3. | Question : | (TCO B) SA - Your firm has debt worth $350,000, with a yield of 12.5 percent, and equity worth $700,000. It is growing at a seven percent rate, and faces a 40 percent tax rate. A similar firm with no debt has a cost equity of 17 percent. Under the MM extension with growth,