The Following Facts Apply to Your Company: Target Capital Structure

question 51

Multiple Choice

The following facts apply to your company: Target capital structure: 50% debt; 50% equity.
EBIT: $200 million.
Assets: $500 million.
Tax rate: 40%.
Cost of new and old debt: 8%.
Based on the residual distribution policy (with all distributions in the form of dividends) , the payout ratio is 60 percent. How large (in millions of dollars) will the capital budget be?

• A) $ 43.2
• B) $ 50.0
• C) $ 64.8
• D) $ 86.4
• E) $108.0

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Definitions:

Horizon

The line where the earth's surface and the sky appear to meet, often used metaphorically to denote the limit of a person's knowledge, experience, or interest.

Bright

Having high intelligence or quick intellectual capacity.

Perceptual Set

A psychological predisposition or readiness to perceive certain features of the environment while ignoring others.

Relative Luminance

A measure of the amount of light that comes from a source or is reflected by a surface, compared to the amount of light coming from a reference source.