Question

Petro Co. has a target capital structure that consists of 60% debt, and 40% equity, the company is considering a project (capital budget) that costs $1,500,000 for the coming year. It is forecasting net income of $800,000.

1- The equity needed for the capital budget is: *

$900,000

$600,000

$480,000

$320,000

None of the above

2- If the company needs to expand its project, the dividend it can pay for shareholders is: *

$0

$200,000

$320,000

$480,000

None of the above

3- If the company needs to expand its project, then the dividend payout ratio is: *

60%

40%

25%

0%

None of the above

4- If the company want to maintain the same dividend payout ratio of last year which is 50%, the amount of dividends expected to be paid this year: *

$750,000

$400,000

$450,000

$320,000

None of the above

5- The company is intending to expand its project that costs $1,500,000; keeping a Dividend payout ratio of 50%, then the amount of external equity needed is : *

$480,000

$320,000

$200,000

No external equity needed

None of the above

6- If company decides to pay dividend payout ratio for 20%; then the maximum capital that it can use for expanding its project is: *

$266,666

$400,000

$1,333,333

$1,600,000

None of the above

Answer 1

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