HiLo Enterprises Maintains a Debt-Equity Ratio Of

question 249

Multiple Choice

HiLo Enterprises maintains a debt-equity ratio of.75 and follows a residual dividend policy. The firm needs $2,000 for new investments next year. The after-tax earnings this year are $1,800. What is the amount that HiLo will pay out in dividends for this year?

• A) $0
• B) $300.00
• C) $657.14
• D) $1,142.86
• E) $1,300.00

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Definitions:

Depreciation

The process of allocating the cost of a tangible asset over its useful life, reflecting the decrease in value over time.

Useful Life

The estimated time period that an asset is expected to be usable for its intended purpose, affecting its depreciation or amortization schedules.

Discount Rate

In discounted cash flow analysis, this is the interest rate utilized to calculate the present value of cash flows expected in the future.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment by calculating the difference between the present value of cash inflows and outflows over a period of time.