Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
This problem introduces the concept of “sustainable dividends”: The firm whose financials are illustrated below wishes to maintain cash balances of 80 over the next 5 years. It also desires to issue neither additional stock nor make any changes in its current level of debt. This means that dividends are the plug in the balance sheet. Model this situation (note that for some parameter levels you may get “negative dividends,” indicating that there is no sustainable level of dividends).
Transcribed Image Text:18 Depreciation
19 Profit before tax
1
2
Sales growth
3 Current assets/Sales
4 Current liabilities/Sales
5
Net fixed assets/Sales
6 Costs of goods sold/Sales
Depreciation rate
7
8
Interest rate on debt
9 Interest paid on cash & marketable securities
10 Tax rate
11
12 Year
13 Income statement
14 Sales
15 Costs of goods sold
16 Interest payments on debt
17 Interest earned on cash & marketable securities
20 Taxes
21 Profit after tax
22 Dividends
23 Retained earnings
29
30
24
25 Balance sheet
26 Cash and marketable securities
27 Current assets
28 Fixed assets
At cost
Depreciation
Net fixed assets
A
31
32 Total assets
B
SUSTAINABLE DIVIDENDS--Template
10%
15%
33
34 Current liabilities
35 Debt
36 Stock
37 Accumulated retained earnings
38 Total liabilities and equity
8%
77%
50%
10%
10.00%
8.00%
40%
0
1,000
(500)
(32)
6
(100)
374
(150)
225
(90)
135
80
150
1,070
C D
(300)
770
1,000
1
2
E F
3
80 80 80
4
80
G
5
80
80
320
320 320
320 320 320
450 450 450 450 450 450
150
1,000
Expert Solution
Step 1
The dividends given in negative(yellow color) means that the dividend is available for distribution and the positive dividend( blue color) means that there is negative dividend.
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