Chapter 13 CFIN6
Chapter 13 Solutions
13-1 Capital budget = $50,000,000
Debt/assets ratio = 60%
Net income = $25,000,000
13-2 Capital budget = $120,000
Debt/assets ratio = 50%
Net income = $100,000
13-3 Capital budget = $20,000,000
Debt/assets ratio = 30%
Net income = $12,000,000
13-4 Capital budget = $8,400,000
Debt/assets ratio = 40%
Net income = $14,400,000
Chapter 13 CFIN6
13-5 Dividend = 500,000 x $2.25 = $1,125,000
Dividend payout ratio = $1,125,000/$2,000,000 = 0.5625 = 56.25%
13-7 DPS0 = $2.50 = pre-split dividend
DPS1 = $0.54 = after-split dividend
13-8 Retained earnings last year = $100,000
Net income last year = $250,000
13-9 Dividends paid last year = $600,000
13–10 Dividend payout ratio = 30%
Desired dividends = $840,000
Dividends = Net income x Dividend payout ratio
$840,000 = (Net income)(0.3)
Chapter 13 CFIN6
13–11 Dividend payout ratio = 40%
a. Dividends last year = $130,000
Dividends this year = $130,000(1.07) = $139,100
Dividends = Net income x Dividend payout ratio
13–12 a. Net income = $760,000:
13–13 Total dividend = $0.95
Extra dividend = [($50,000 – $30,000)(0.3)]/40,000 = $0.15
Low-regular dividend = $0.95 – $0.15 = $0.80
Chapter 13 CFIN6
The following table summarizes the capital budgeting decision:
Project Cost Costs IRR WACC Acceptable?*
A $684,000 $ 684,000 16.0% 10.0% Yes, IRR > WACC
Only project A should be purchased, which means the optimal capital budget is $684,000.
If Dirty Dogs’ capital budget is $684,000, the amount that will be raised through common equity is:
Common equity portion of capital budget = $684,000 x 0.6 = $410,400
13–15 Dividend payments this year = $20,000(1.05) = $21,000
Retained earnings = $39,000 – $21,000 = $18,000
Retained earnings break point = $18,000/0.3 = $60,000
If Project S is purchased, the amount of common equity that must be used to purchase the project is:
Common equity funding = $45,000 x 0.3 = $13,500
13–16 Pre-split price = $225
Post-split price = $225/10 = $22.50
13–18 Post-split dividend = $0.55
Chapter 13 CFIN6
13–19 Following is the equity section of the balance sheet prior to the stock dividend:
Common stock (12,000 shares outstanding, $2 par value) $24,000
Additional paid-in capital 16,000
Retained earnings 10,000
13–20 Following is the equity section of the balance sheet prior to the stock split:
Common stock (12,000 shares outstanding, $2 par value) $24,000
Additional paid-in capital 16,000
Retained earnings 10,000
Total common shareholders’ equity $50,000
Following is the equity section of the balance sheet after the stock split:
Post-split par value = $2/5 = $0.40