Fin571
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- Date Submitted: 10/27/2012 06:36 PM
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Complete the problem sets and show all steps in your work:
• Ch. 17: Problem B1
• Ch. 18: Problems A10 & B2
• Ch. 20: Problem A2
• Ch. 21: Problem C2
Chapter 17, Problem B1
A. To remain comfortably within the ‘A’ range, the firm should avoid the lower of each scale.
Fixed Charge Coverage = 3.40 – 4.30 (Scale 3.00 – 4.30)
Total Debt = 55 – 65 (45 - 65)
Long-Term Debt = 25 – 32 (22 – 32)
B. Other factors to consider include net present value (NPV), foreign tax credits, and the price of stock.
C. Bixton must resolve the research and development, and foreign tax credits. The target ranges listed are suitable only for a debt shield. Lenders monitor long-term debt. If R&D spending increases and foreign tax credits remain balanced, then this may fall out of the 22-32 range which indicates the capital structure is losing leverage.
Chapter 18, A10
DPS1 – DPS0 = ADJ [POR(EPS1) – DPS0]
YEAR 1 = 0.75 [0.25 X $8.00 - $1.00] + $1.00 = $1.75
YEAR 2 = 0.75 [0.25 X $8.00 - $1.75] + $1.75 = $1.94
YEAR 3 = 0.75 [0.25 X $8.00 - $1.94] + $1.94 = $1.985
YEAR 4 = 0.75 [0.25 X $8.00 - $1.98] + $1.98 = $2.00
YEAR 5 = 0.75 [0.25 X $8.00 - $2.00] + $2.00 = $2.00
Chapter 18, B2
(A) TOTAL DISCRETIONARY CASH FLOW (B) TOTAL EARNINGS
$ 50.00 $ 100.00
$ 70.00 $ 125.00
$ 60.00 $ 150.00
$ 20.00 $ 120.00
$ 15.00 $ 140.00
$ 215.00 $ 635.00
Maximum Payout Ratio = $215/$635 = 33.86%
B. Current Dividend = $1.50 X 20 Million Shares = $30 Million
"Fin571 Week 5 Problem Sets" StudyMode.com. 09 2012. 09 2012 .
CHICAGO
"Fin571 Week 5 Problem Sets." StudyMode.com. 09, 2012. Accessed 09, 2012. http://www.studymode.com/essays/Fin571-Week-5-Problem-Sets-1107048.html.
• Ch. 17: Problem B1
• Ch. 18: Problems A10 & B2
• Ch. 20: Problem A2
• Ch. 21: Problem C2
Chapter 17, Problem B1
A. To remain comfortably within the ‘A’ range, the firm should avoid the lower of each scale.
Fixed Charge Coverage = 3.40 – 4.30 (Scale 3.00 – 4.30)
Total Debt = 55 – 65 (45 - 65)
Long-Term Debt = 25 – 32 (22 – 32)
B. Other factors to consider include net present value (NPV), foreign tax credits, and the price of stock.
C. Bixton must resolve the research and development, and foreign tax credits. The target ranges listed are suitable only for a debt shield. Lenders monitor long-term debt. If R&D spending increases and foreign tax credits remain balanced, then this may fall out of the 22-32 range which indicates the capital structure is losing leverage.
Chapter 18, A10
DPS1 – DPS0 = ADJ [POR(EPS1) – DPS0]
YEAR 1 = 0.75 [0.25 X $8.00 - $1.00] + $1.00 = $1.75
YEAR 2 = 0.75 [0.25 X $8.00 - $1.75] + $1.75 = $1.94
YEAR 3 = 0.75 [0.25 X $8.00 - $1.94] + $1.94 = $1.985
YEAR 4 = 0.75 [0.25 X $8.00 - $1.98] + $1.98 = $2.00
YEAR 5 = 0.75 [0.25 X $8.00 - $2.00] + $2.00 = $2.00
Chapter 18, B2
(A) TOTAL DISCRETIONARY CASH FLOW (B) TOTAL EARNINGS
$ 50.00 $ 100.00
$ 70.00 $ 125.00
$ 60.00 $ 150.00
$ 20.00 $ 120.00
$ 15.00 $ 140.00
$ 215.00 $ 635.00
Maximum Payout Ratio = $215/$635 = 33.86%
B. Current Dividend = $1.50 X 20 Million Shares = $30 Million
"Fin571 Week 5 Problem Sets" StudyMode.com. 09 2012. 09 2012 .
CHICAGO
"Fin571 Week 5 Problem Sets." StudyMode.com. 09, 2012. Accessed 09, 2012. http://www.studymode.com/essays/Fin571-Week-5-Problem-Sets-1107048.html.