# Quiz

Submitted By rutasmile
Words 906
Pages 4
1. | Question : | (TCO C) Brammer Corp.'s projected capital budget is \$1,000,000, its target capital structure is 60 percent debt and 40 percent equity, and its forecasted net income is \$550,000. If the company follows a residual dividend policy, what total dividends, if any, will it pay out?
(a) \$122,176
(b) \$128,606
(c) \$135,375
(d) \$142,500
(e) \$150,000 |
|
| Student Answer: |   | Answer (e) Equity capital budget=1,000,000X0.4=400,000 Projected max dividend=550,000-400,000=\$150,000 |
| Instructor Explanation: | E is correct. Instructor Explanation: (From Chapter 14 - Section 14.7 of text, pp. 570-572)
Residual Dividend Model
Capital budget\$1,000,000
% Equity 40%
Net income (NI)\$550,000
Dividends paid = NI - [% Equity(Capital budget)] \$150,000 |
|
|
| Points Received: | 0 of 1 |
|
|

2. | Question : | (TCO F) Orient Airlines' common stock currently sells for \$33, and its eight percent convertible debentures (issued at par, or \$1,000) sell for \$850. Each debenture can be converted into 25 shares of common stock at any time before 2019. What is the conversion value of the bond?
(a) \$707.33
(b) \$744.56
(c) \$783.75
(d) \$825.00
(e) \$866.25 |
|
| Instructor Explanation: | D is correct. Instructor Explanation: Convertible Bonds (from Chapter 19 - Section 3, pp. 770 - 774)
Stock price: \$33.00
Coupon rate: 8.00%
Bond price: \$850.00
Par value: \$1,000.00
Conversion ratio: 25.00
Conversion value = Conversion ratio x Stock price = \$825 |
|
|
| Points Received: | 0 of 1 |