logo

Dividend Payout Ratio - PDF

   

Added on  2021-06-15

6 Pages1017 Words37 Views
Answer 1a)Dividend to be received in May 2018 (in $)= Net profit for 2018 x share % x dividend pay-out ratio = 600000 x 15% x 75% = 67,500 Dividend to be received in May 2019 (in $)= Net profit for 2018 x (1 + growth rate) x share % x dividend pay-out ratio = 600000 x (1 + 30%) x 15% x 75% = 87,750 Amount required in late May 2019 (in $)= 100,000 Dividend to be received in May 2019 (in $)= 87,750 Remaining (in $)= 100000 - 87750 = 12,250 Value of 12,250 in May 2018 (in $)= Present value of 12,250 for one year at interest rate of 10% = 12250 / (1 + 10%) = 11,136 She can consume in May 2018 (in $)= 67500 - 11136 = 56,364 b)Discount rate=6%Cost of System P (in $)= 200,000

Useful life (in years)=3Operating cost per annum (in $)= 10,000 Present value annuity factor for 3 years at 6%= 2.6730 Annual Equivalent cost (in $)= (Cost of system / PVAF) + operating cost = (200000 / 2.6730) + 10000 = 84,822 Discount rate=6%Cost of System Q (in $)= 240,000 Useful life (in years)=4Operating cost per annum (in $)= 12,000 Present value annuity factor for 4 years at 6%= 3.4651 Annual Equivalent cost (in $)= (Cost of system / PVAF) + operating cost = (240000 / 3.4651) + 12000 = 81,262 Since AEC of system Q is less than that of system P. System Q should be selected.c)Face value of Notes (in $)= 1,000.00 Coupon rate per annum=14%Interest amount (in $)= Face value x coupon rate = 1000 x 14% = 140.00

Required rate of return=18%As per details given in the question, payment will be done as given below.ParticularsAmount ($)Payment year no.Interest of May-19 paid in May-23 140.00 5 Interest of May-20 paid in May-23 140.00 5 Interest of May-21 paid in May-21 140.00 3 Interest of May-22 paid in May-22 140.00 4 Interest of May-23 paid in May-23 140.00 5 Repayment 1,000.00 5 YearAmountPVFPV3 140.00 0.6086 85.21 4 140.00 0.5158 72.21 5 1,420.00 0.4371 620.70 778.11Current value of each unsecured note (in $)= 778.11Answer 4a)Tax rate=30%Cost of capital=10%Working capital requirement (in $)= 30,000 New TrucksCost of each truck (in $)= 500,000 Total cost of truck (in $)= Cost of each truck x 2 = 500000 x 2

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
QUESTION `1. [6 + 4 + 6 = 16 Marks.]
|15
|3500
|34

Financial Analysis Solutions
|11
|2265
|169

Fundamental of Finance Assignment in PDF
|13
|1984
|13

Financial Analysis and Investment Decisions
|11
|2120
|474

FIN700 Assume that Jillian Black
|55
|9152
|106