Question

In: Finance

In 2015, the Keenan Company paid dividends totaling $3,810,000 on net income of $20 million. Note...

In 2015, the Keenan Company paid dividends totaling $3,810,000 on net income of $20 million. Note that 2015 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 4%. However, in 2016, earnings are expected to jump to $32 million and the firm expects to have profitable investment opportunities of $14.6 million. It is predicted that Keenan will not be able to maintain the 2016 level of earnings growth because the high 2016 earnings level is attributable to an exceptionally profitable new product line introduced that year. After 2016, the company will return to its previous 4% growth rate. Keenan's target capital structure is 40% debt and 60% equity.


  1. Calculate Keenan's total dividends for 2016 assuming that it follows each of the following policies: (Write out your answers completely. For example, 25 million should be entered as 25,000,000.)
    1. Its 2016 dividend payment is set to force dividends to grow at the long-run growth rate in earnings. Round your answer to the nearest cent.
      $

    2. It continues the 2015 dividend payout ratio. Round your answer to the nearest cent. Do not round intermediate calculations.
      $

    3. It uses a pure residual dividend policy (40% of the $14.6 million investment is financed with debt and 60% with common equity). Round your answer to the nearest cent.
      $

    4. It employs a regular-dividend-plus-extras policy, with the regular dividend being based on the long-run growth rate and the extra dividend being set according to the residual dividend policy. Round your answer to the nearest cent.
Regular-dividend
Extra dividend
  1. Assume that investors expect Keenan to pay total dividends of $9,000,000 in 2016 and to have the dividend grow at 4% after 2016. The stock's total market value is $180 million. What is the company's cost of equity? Round your answer to two decimal places.
    %
  2. What is Keenan's long-run average return on equity? [Hint: g = Retention rate x ROE = (1.0 - Payout rate)(ROE).] Do not round intermediate calculations. Round your answer to two decimal places.

    %

Solutions

Expert Solution

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


Related Solutions

In 2015, the Keenan Company paid dividends totaling $2,340,000 on net income of $13.6 million. Note...
In 2015, the Keenan Company paid dividends totaling $2,340,000 on net income of $13.6 million. Note that 2015 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 7%. However, in 2016, earnings are expected to jump to $20.4 million and the firm expects to have profitable investment opportunities of $10.2 million. It is predicted that Keenan will not be able to maintain the 2016 level of earnings growth because the...
In 2017, Keenan Company paid dividends totaling $3,600,000 on net income of $10.8 million. Note that...
In 2017, Keenan Company paid dividends totaling $3,600,000 on net income of $10.8 million. Note that 2017 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 10%. However, in 2018, earnings are expected to jump to $14.4 million and the firm expects to have profitable investment opportunities of $8.4 million. It is predicted that Keenan will not be able to maintain the 2018 level of earnings growth because the high...
In 2017, the Keenan Company paid dividends totaling $3.6 million on net income of $10.8 million....
In 2017, the Keenan Company paid dividends totaling $3.6 million on net income of $10.8 million. Note that 2017 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 10%. However, in 2018, earnings are expected to jump to $14.4 million, and the firm expects to have profitable investment opportunities of $8.4 million. It is predicted that Keenan will not be able to maintain the 2018 level of earnings growth—the high...
Alternative: Dividend Policies: In 2013, Keenan Company paid dividends totaling $3,600,000 on net income of $10.8...
Alternative: Dividend Policies: In 2013, Keenan Company paid dividends totaling $3,600,000 on net income of $10.8 million. Note that 2013 was a normal year and that for the past 10 years, earnings have grown at 10%. However in 2014, earnings are expected to jump to $14.4 million and the firm expects to have profitable investment opportunities of $8.4 million. It is predicted that Keenan will not be able to maintain the 2014 level of earnings growth because of the high...
In 2005, Keenan Company paid dividends totaling $ 3,600,000 over a net profit of $ 10.8...
In 2005, Keenan Company paid dividends totaling $ 3,600,000 over a net profit of $ 10.8 million. It was a normal year and in the last 10 years, profits grew at a constant rate of 10%. But in 2006 it is expected to reach $ 14.4 million and that there are profitable investment opportunities for $ 8.4 million. It is anticipated that Keenan will not be able to maintain that level of growth - attributed to a new line of...
In 2013 the Keenan company pay dividends totalling $2,030,000 on net income of $18.5 million. Note...
In 2013 the Keenan company pay dividends totalling $2,030,000 on net income of $18.5 million. Note that 2013 was a normal year and for the past 10 years, earnings have grown at a constant rate of 5%. However, in 2014, earnings are expected to jump to $25.9 million and the firm expects to have profitable investment opportunities of $14.8 million. It is predicted that Keenan will not be able to maintain the 2014 level of earnings growth because the high...
In 2013 the Keenan company pay dividends totalling $2,030,000 on net income of $18.5 million. Note...
In 2013 the Keenan company pay dividends totalling $2,030,000 on net income of $18.5 million. Note that 2013 was a normal year and for the past 10 years, earnings have grown at a constant rate of 5%. However, in 2014, earnings are expected to jump to $25.9 million and the firm expects to have profitable investment opportunities of $14.8 million. It is predicted that Keenan will not be able to maintain the 2014 level of earnings growth because the high...
Assume that in 2017, The Shallonz Corporation reported net income of $143 million, and paid dividends...
Assume that in 2017, The Shallonz Corporation reported net income of $143 million, and paid dividends totaling $36.5 million throughout the year. Their net income has been growing at about 5% per year for some time, but it is expected to grow by 20% in 2018. Growth is expected to return to the normal 5% the following year and thereafter. It has also been estimated that the company will need about $52 million in funds for capital expenditures in 2018....
Company A has an annual income of $100 million and net profit is %20 , and...
Company A has an annual income of $100 million and net profit is %20 , and the owner wants to establish a project at a cost of $300 million. Is the project should financed from the income of Company A or financed from bank, and why?
Small Company reported 20X7 net income of $43,000 and paid dividends of $14,000 during the year....
Small Company reported 20X7 net income of $43,000 and paid dividends of $14,000 during the year. Mock Corporation acquired 30 percent of Small's shares on January 1, 20X7, for $99,000. At December 31, 20X7, Mock determined the fair value of the shares of Small to be $127,000. Mock reported operating income of $81,000 for 20X7. Required: Compute Mock's net income for 20X7 assuming it a. Carries the investment in Small at fair value. b. Uses the equity method of accounting for its investment in...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT