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Ac553 Week 1 Essay

516 words - 3 pages

Problem 14-10
A. 1. 2011 Dividends = (1.10)(2010 Dividends) = (1.10)($3,600,000) = $3,960,000
2. 2010 Payout = $3,600,000/$10,800,000 = 0.33 = 33% 2011 Dividends = (0.33)(2011 Net income) =
(0.33)($14,400,000) = $4,800,000 (Note: If the payout ratio is rounded off to 33%, 2011 dividends are then calculated as $4,752,000.)
3. Equity financing = $8,400,000(0.60) = $5,040,000 2011 Dividends = Net income - Equity financing =
$14,400,000 - $5,040,000 = $9,360,000 All of the equity financing is done with retained earnings as long as they are available.
4. The regular dividends would be 10% above the 2010 dividends: Regular dividends =
(1.10)($3,600,000) = $3,960,000. The residual policy calls for dividends of $9,360,000. Therefore, the extra dividend, which would be stated as such, would be: ...view middle of the document...

Howland’s control position | 49% | 53% | 53% |
| | | 0.59 | 0.64 | 0.88 |
| $1,300,000 Original Number of shares Total shares Percent ownership 80,000 /100,000= 80% ,80,000/ 162,500= 49% ,80,000 /150,000= 53% ,80,000/ 150,000= 53% half of the funds raised will be used to pay off the bank loan and half to increase total assets. Show Mr. Holand's control position under each alternative, assuming that he does not purchase additional shares |
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C. | $160,000 Income Statement $0 $160,000 $64,000 $96,000 150,000 $0.64 18.75% Debt Ratio EBIT Interest EBT Taxes Net Income Shares outstanding Earnings per share 50000 150000 80000 53.33% $260,000 $40,000 $220,000 $88,000 $132,000 150,000 $0.88 50.00% |
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| | alternative 1 | alternative 2 | alternative 3 | total |
| | 800000 | 80000 | 130000 | 550000 |
| | 160000 | 160000 | 260000 | 110000 |
| | 0 | 0 | 40000 | 20000 |
| | 160000 | 160000 | 220000 | 90000 |
| | 64000 | 64000 | 88000 | 36000 |
| | 96000 | 96000 | 132000 | 54000 |
| | 162500 | 150000 | 150000 | 100000 |
| | 0.59 | 0.64 | 0.88 | 0.54 |
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D. | Debit Ratio | 19% | 19% | 50% | 73% |
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E. | Alternative 3 is best. It keeps the level of control to 53% While resulting in maximum increase in EPS. $0.88 It also provides the maximum funding in one go, thereby reducing the need to go to capital market again and again for funding. |
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