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In: Accounting
The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net...
The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250,000. The company is planning to launch a project that will requires an investment of $175,000 next year. Currently the share of Giant machinery is $25/share. Required: a) How much dividend Giant Machinery can pay its shareholders this year and what is dividend payout ratio of the company? Assume the Residual Dividend Payout Policy applies. b) If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%. c) Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidation plan due to the severe contraction of operation due to corona virus. The company plans to pay total dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend. The required rate of return for shareholders is 12%. Calculate the current value of the firm’s equity in total and per share if the firm has 1.5 million shares outstanding.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net...
The Giant Machinery has the current capital structure of 65%
equity and 35% debt. Its net income in the current year is
$250,000. The company is planning to launch a project that will
requires an investment of $175,000 next year. Currently the share
of Giant machinery is $25/share.
Required:
a) How much dividend Giant Machinery can pay its shareholders
this year and what is dividend
payout ratio of the company? Assume the Residual Dividend
Payout Policy applies.
b) If the...
The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net...
The Giant Machinery has the current capital structure of 65%
equity and 35% debt. Its net income in the current year is
$250,000. The company is planning to launch a project that will
requires an investment of $175,000 next year. Currently the share
of Giant machinery is $25/share. Required: a) How much dividend
Giant Machinery can pay its shareholders this year and what is
dividend payout ratio of the company? Assume the Residual Dividend
Payout Policy applies. b) If the...
The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net...
The Giant Machinery has the current capital structure of 65%
equity and 35% debt. Its net income in the current year is $250
000. The company is planning to launch a project that will requires
an investment of $175 000 next year. Currently the share of Giant
machinery is $25/share. Required: a. How much dividend Giant
Machinery can pay its shareholders this year and what is dividend
payout ratio of the company. Assume the Residual Dividend Payout
Policy applies? b....
has a target capital structure of 65% common equity and 35% debt to fund its $10...
has a target capital structure of 65% common equity and 35% debt
to fund its $10 billion in operating assets. Furthermore, Kahn Inc.
has a WACC of 16%, a before-tax cost of debt of 12%, and a tax rate
of 25%. The company's retained earnings are adequate to provide the
common equity portion of its capital budget. Its expected dividend
next year (D1) is $2, and the current stock price is
$25.
What is the company's expected growth rate? Do...
Pearson Motors has a target capital structure of 35% debt and 65% common equity, with no...
Pearson Motors has a target capital structure of 35% debt and
65% common equity, with no preferred stock. The yield to maturity
on the company's outstanding bonds is 8%, and its tax rate is 40%.
Pearson's CFO estimates that the company's WACC is 13.10%. What is
Pearson's cost of common equity? Do not round intermediate
calculations. Round your answer to two decimal places.
%
Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund...
Kahn Inc. has a target capital structure of 65% common equity
and 35% debt to fund its $11 billion in operating assets.
Furthermore, Kahn Inc. has a WACC of 15%, a before-tax cost of debt
of 12%, and a tax rate of 25%. The company's retained earnings are
adequate to provide the common equity portion of its capital
budget. Its expected dividend next year (D1) is $2, and
the current stock price is $32.
a. What is the company's expected...
Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund...
Kahn Inc. has a target capital structure of 65% common equity
and 35% debt to fund its $8 billion in operating assets.
Furthermore, Kahn Inc. has a WACC of 12%, a before-tax cost of debt
of 11%, and a tax rate of 25%. The company's retained earnings are
adequate to provide the common equity portion of its capital
budget. Its expected dividend next year (D1) is $2, and
the current stock price is $29.
What is the company's expected growth...
Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund...
Kahn Inc. has a target capital structure of 65% common equity
and 35% debt to fund its $10 billion in operating assets.
Furthermore, Kahn Inc. has a WACC of 16%, a before-tax cost of debt
of 12%, and a tax rate of 40%. The company's retained earnings are
adequate to provide the common equity portion of its capital
budget. Its expected dividend next year (D1) is $3, and
the current stock price is $35.
What is the company's expected growth...
Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with...
Palencia Paints Corporation has a target
capital structure of 35% debt and 65% common equity, with no
preferred stock. Its before-tax cost of debt is 8%, and its
marginal tax rate is 40%. The current stock price is
P0$22.00. The last dividend was D0$2.25, and
it is expected to grow at a 5% constant rate. What is its cost of
common equity and its WACC?
Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with...
Palencia Paints Corporation has a target capital structure of
35% debt and 65% common equity, with no preferred stock. Its
before-tax cost of debt is 9%, and its marginal tax rate is 40%.
The current stock price is P0 = $28.50. The last
dividend was D0 = $3.00, and it is expected to grow at a
7% constant rate. What is its cost of common equity and its WACC?
Round your answers to two decimal places. Do not round your...
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