22.08.2019
 Weeks one particular - 7 Homework Response Key Essay

FI516 – WEEK 1 – GROUNDWORK ANSWER ESSENTIAL

Issue 14-10 14-10

a. 1 . 2011 Dividends sama dengan (1. 10)(2010 Dividends) = (1. 10)($3, 600, 000) = $3, 960, 000 2 . 2010 Payout = $3, six hundred, 000/$10, 800, 000 sama dengan 0. 33 = 33% 2011 Dividends = (0. 33)(2009 Net income) sama dengan (0. 33)($14, 400, 000) = $4, 800, 000 (Note: In the event the payout rate is rounded off to 33%, 2011 dividends happen to be then computed as $4, 752, 500. ) several. Equity loans = $8, 400, 000(0. 60) = $5, 040, 000 2011 Dividends sama dengan Net income -- Equity financing = $14, 400, 500 - $5, 040, 1000 = $9, 360, 500 All of the equity financing is performed with stored earnings so long as they are available. 5. The regular returns would be 10% above the 2010 dividends: Regular dividends sama dengan (1. 10)($3, 600, 000) = $3, 960, 1000. The residual coverage calls for returns of $9, 360, 500. Therefore , the excess dividend, which in turn would be explained as such, will be: Extra gross = $9, 360, 000 - $3, 960, 1000 = $5, 400, 000. An even better use of the funds might be a stock repurchase.

n. Policy four, based on the totally normal dividend with an extra, appears most logical. Applied properly, it would lead to the best capital spending budget and the right financing of this budget, and it would provide correct signals to shareholders.

Problem 19-6

19-6

a.

Balance Sheet Option 1 Total current liabilities Long-term personal debt Common stock, par $1 Paid-in capital Retained income Total claims

Total property

$800, 1000

$150, 1000 -162, five-hundred 437, five-hundred 50, 500 $800, 000

Alternative a couple of Total current liabilities Long lasting debt Prevalent stock, equiparable $1 Paid-in capital Stored earnings Total claims

Total assets

hundreds of dollars, 000

one hundred fifty dollars, 000 -150, 000 435.00, 000 55, 000 bucks 800, 1000

Alternative 3 Total current liabilities Long-term debt (8%) Common inventory, par $1 Paid-in capital Retained profits Total claims Plan one particular 80, 500 162, 500 49% Prepare 2 70, 000 a hundred and fifty, 000 53%

Total assets b. Volume of shares Total shares Percent ownership

$1, 300, 500 Original 70, 000 75, 000 80%

$ 150, 500 500, 1000 150, 1000 450, 1000 50, 000 $1, three hundred, 000 Strategy 3 80, 000 150, 000 53%

c. Total assets EBIT Interest EBT Taxes (40%) Net income Number of shares Income per share d. Total liabilities TL/TA

Original Program 1 Plan 2 Plan 3 $ 550, 1000 $800, 000 $800, 500 $1, three hundred, 000 $ 110, 1000 $160, 000 $160, 000 $ 260, 000 20, 000 zero 0 forty, 000 bucks 90, 500 $160, 1000 $160, 1000 $ 220, 000 thirty-six, 000 sixty four, 000 64, 000 88, 000 $ 54, 000 $ 96, 000 dollar 96, 500 $ 132, 000 100, 000 162, 500 150, 000 a hundred and fifty, 000 $0. 59 $0. 64 $0. 88 $0. 54 Initial $400, 000 73% Prepare 1 $150, 000 19% Plan two Plan a few $150, 000 $650, 000 19% 50%

e. Alternate 1 brings about loss of control (to 49%) intended for the company. Under it, he seems to lose his most shares outstanding. Indicated income per discuss increase, and the debt percentage is reduced considerably (by 54 percentage points). Option 2 results in maintaining control (53%) for the firm. Earnings every share enhance, while a reduction in the debt percentage like that in Alternative one particular occurs. Under Alternative three or more, there is also repair of control (53%) for the firm. This plan of action results in the best earnings every share (88 cents), which can be an increase of 63% on the original profits per talk about. The debt rate is lowered to 50%. Conclusions. In the event the assumptions of the problem will be borne out in fact, Substitute 1 is definitely inferior to 2, since the loss of control is definitely avoided. The debt-to-equity proportion (after conversion) is the same in equally cases. As a result, the evaluation must direct attention to the choice between 2 and 3. The differences between both of these alternatives, that are illustrated in some parts c and d, will be that the increase in earnings per share can be substantially greater under Alternative 3, although so is the debt ratio. With its low debt proportion (19%), the firm is within a good placement for foreseeable future growth beneath Alternative installment payments on your However , the 50% percentage under several is certainly not prohibitive and it is a great improvement over the unique situation. The combination of increased earnings every share and reduced personal debt ratios implies favorable share price moves in the two cases, particularly under...