Quiz

Quiz

 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 |
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    | 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 |
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    | Points Received: | 0 of 1 |
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   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 |
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    | Student Answer: |   | Answer (d) Coversion value=33x25=$825 |
  | 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 |
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    | Points Received: | 0 of 1 |
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   3. | Question : | (TCO B) If debt financing is used, which of the following is CORRECT?
(a) The percentage change in net operating income will be greater than a given percentage change in net income.
(b) The percentage change in net operating income will be equal to a given percentage change in net...

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