EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 12, Problem 15P
a)
Summary Introduction
To determine: The marginal cost of capital schedule.
b)
Summary Introduction
To determine: The optimal capital budget.
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The financial manager of Sarap Corporation wants to determine the amount of cash outlays to be spent for the next period. He asked the help of the accountant and the latter provided a cash budget for the next year. According to the computations, the company would be incurring cash expenses of P6,612,500 per month. The financial manager has estimated a cost of P40 per transaction in case non-cash asset is converted to cash. The firm's opportunity cost ratio is 12%.
a. The optimum cash balance is?
Tong Foong Co. Ltd. has decided that its capital budget during the coming year will be $20 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) are projected to be $34.667 million for the year. The company has $200 million of assets; its average interest rate on outstanding debt is 10 percent; and its tax rate is 40 percent.
Required:
How much debt is outstanding (in dollars) and what is the cost of the debt (in dollars) for the period?
Compute the Earnings After Tax (Net Income)?
How much equity is required for the coming year capital budget?
If the company follows the residual dividend policy and maintains the same capital structure, what will its dividend payout (in $) and the dividend payout ratio (in %)?
ABC, Ltd. is considering the purchase of a new factory that will increase their capacity. They plan to pay for the investment with an amortized bank loan. The annual payments on the loan will be $963,000 per year, of which $363,000 of the first-year payment will be interest. How will the payment and interest be treated in the cash flows for capital budgeting?
Chapter 12 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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