Tapley Inc

question 55

Multiple Choice

Tapley Inc.'s current (target) capital structure has a target debt ratio (D/TA) of 60 percent.The firm can raise up to $5 million in new debt at a before-tax cost of 8 percent.If more debt is required, the initial cost will be 8.5 percent,
And if more than $10 million of debt is required, the cost will be 9 percent.Net income for the previous year was $10 million, and it is expected to increase by 10 percent this year.The firm expects to maintain its dividend payout ratio
Of 40 percent on the 1 million shares of common stock outstanding.If it must sell new common stock, it would encounter a 10 percent flotation cost on the first $2 million, a 15 percent cost if more than $2 million but less than $4 million is needed, and a 20 percent cost if more than $4 million of new outside equity is required.Tapley's tax rate is
30 percent, and its current stock price is $88 per share.If the firm has an unlimited number of projects which will earn a 10.25 percent return, what is the maximum capital budget that can be adopted without adversely affecting stockholder wealth?

• A)$32.0 million
• B)$15.9 million
• C)$23.0 million
• D)$10.6 million
• E)$26.5 million

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Definitions:

Supplier Location

The physical geographical position of a supplier, which can significantly impact logistics, costs, and supply chain efficiency.

Setup Costs

Refers to the expenses incurred to get equipment ready to process a different batch of goods.

Suppliers

Entities that provide goods or services to another organization, often part of the supply chain.

Lot Sizes

The quantity of units produced, purchased, or sold in a single operation or transaction, often optimized for efficiency in production and inventory management.