Question

The Equity Company projects the following for the upcoming year:

Earnings before interest and taxes P40 million

Interest expense P5 million

Preferred stock dividends P4 million

Common stock dividend payout ratio 20%

Average number of common shares outstanding 2 million

Effective corporate income tax rate 40%

The expected dividend per share of common stock is

A. P1.70

B. P1.86

C. P2.10

D. P1.003.

How much will a firm need in cash flow before tax and interest to satisfy debt holders and equity holders if the tax rate is 40%, there is P10 million in common stock requiring a 12% return, and P6 million in bonds requiring an 8% return?

A. P1,392,000

B. P1,488,000

C. P2,480,000

D. P2,800,000

During the past five years, Pledge Company had consistently paid 50% of earnings available to common as dividends. Next year, the Pledge Company projects its net income, before the P1.2 million preferred dividends, at P6 million. The capital structure for the company is maintained at:Debt25.5%Preferred stock15.0%Common equity60.0% What is the retained earnings break-point next year?

A. P5,760,000

B. P4,800,000

C. P4,000,000

D. P6,000,000

Cartel Company expects P30 million in earnings next year. Its dividend payout ratio is 40 percent, and its equity to asset ratio is 40 percent. Cartel Company uses no preferred stock.At what amount of financing will there be a break point in Cartel’s cost of capital?

A. P45 million

B. P20 million

C. P30 million

D. P18 million

The Florida Co. has an equity cost of capital of 17%. The debt to equity ratio is 1.5 and a cost of debt is 11%. What is the weighted average cost of capital of the firm? (Assume a tax rate of 33%)

A. 3.06%

B. 13.40%

C. 16.97%

D. 15.52%

What is the required rate of return for a security with a Beta of .8 when the market return is 12 percent, the real rate of return is 3 percent, and the expected inflation premium is 2 percent?

A. 17.8 percent

B. 8.6 percent

C. 10.6 percent

D. 12.6 percent

Platter Company’s stock is currently selling for P60 a share. The firm is expected to earn P5.40 per share and to pay a year-end dividend of P3.60.If investors require a 9 percent return, what rate of growth must be expected for Platter?

A. Zero growth

B. 3.0 percent

C. 40.0 percen

tD. 50.0 percent

What is the asset beta given the debt beta is .2, the equity beta is 1.4, the market value of equity is P45 million, and the market value of debt is P15 million?

A. 0.20

B. 1.10

C. 1.40

D. 1.5029.

The market value of Negros Company's equity is P15 million, and the market value of its risk-free debt is P5 million. If the required rate of return on the equity is 20% and that on the debt is 8%, calculate the company's cost of capital. (Assume no taxes.)

A. 17%

B. 20%

C. 8.1%

D. None of the above

Answer 1

The correct answer would be A i.e P1.7 the correct explation is given below :

INCOME STATEMENT
	Earnings before Interest amd tax	40
(-)	Interest expenses			5
	EBT				35
(-)	Tax rate @ 40%			14
	Net Income			21
	Divident paid to preference share holders	4
	Retained Earnings			17
	Payout ratio is 20 %			3.4

There is 2 million common stocks therefore expected divdend per share = 3.4/2

1.7

Therefore the correct answer is P1.7.