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​(Constant dividend payout ratio policy​) The Blunt Trucking Company needs to expand its fleet by 70...

​(Constant dividend payout ratio policy​)

The Blunt Trucking Company needs to expand its fleet by 70 percent to meet the demands of two major contracts it just received to transport military equipment from manufacturing facilities scattered across the United States to various military bases. The cost of the expansion is estimated to be $11million. Blunt maintains a 40 percent debt ratio and pays out 50 percent of its earnings in common stock dividends each year.

a. If Blunt earns $4 million next​ year, how much common stock will the firm need to sell in order to maintain its target capital​ structure?

b. If Blunt wants to avoid selling any new stock but wants to maintain a constant dividend payout percentage of 50

​percent, how much can the firm spend on new capital​ expenditures?

a. If Blunt earns $4 million next​ year, how much common stock will the firm need to sell in order to maintain its target capital​ structure?

​$ million  ​(Round to two decimal​ places.)

b. If Blunt wants to avoid selling any new stock but wants to maintain a constant dividend payout percentage of

50 ​percent, how much can the firm spend on new capital​ expenditures?

​$ million  ​(Round to two decimal​ places.)

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 2 years ago
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