United Builders Wants to Maintain a Target Capital Structure with 30

question 28

Multiple Choice

United Builders wants to maintain a target capital structure with 30% debt and 70% equity.Its forecasted net income is $550,000, and because of market conditions, the company will not issue any new stock during the coming year.If the firm follows the residual dividend policy, what is the maximum capital budget that is consistent with maintaining the target capital structure?

• A) $673,652
• B) $709,107
• C) $746,429
• D) $785,714
• E) $825,000

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Definitions:

Gratuitous Agent

An agent who acts without being paid for his or her services.

Consideration

The bargained-for exchange; what each party gets in exchange for his or her promise under a contract.

Authority

The power or right to make decisions, give orders, and enforce obedience.

Principal

The main party to a transaction, such as the owner of a business, or the amount of money loaned or invested, excluding interest or profits.