A Corporation Expects to Have Earnings Available to Common Shareholders

question 135

Multiple Choice

A corporation expects to have earnings available to common shareholders (net income minuspreferred dividends) of $1,000,000 in the coming year. The firm plans to pay 40 percent of earningsavailable in cash dividends. If the firm has a target capital structure of 40 percent long-term debt,10 percent preferred stock, and 50 percent common stock equity, what capital budget could thefirm support without issuing new common stock?

• A) $800,000
• B) $600,000
• C) $2,000,000
• D) $1,200,000

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