quiz 1 - 1. If a firm adheres strictly to the residual...

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1. If a firm adheres strictly to the residual dividend policy, then if its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/total assets ratio), then the firm should pay a. no dividends except out of past retained earnings. b. no dividends to common stockholders. c. dividends only out of funds raised by the sale of new common stock. d. dividends only out of funds raised by borrowing money (i.e., issue debt). e. dividends only out of funds raised by selling off fixed assets. Discuss fully the reasons for your choice, then discuss briefly why the other choices are incorrect. (Points: 10) 2. Dentaltech Inc. projects the following data for the coming year. If the firm follows the residual dividend policy and also maintains its target capital structure, what will its payout ratio be? EBIT $2,000,000 Capital budget $850,000 Interest rate 10% % Debt 40% Debt outstanding $5,000,000 % Equity 60% Shares outstanding $5,000,000 Tax rate
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quiz 1 - 1. If a firm adheres strictly to the residual...

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