Driver Corporation Faces an IOS Schedule Calling for a Capital

question 51

Multiple Choice

Driver Corporation faces an IOS schedule calling for a capital budget of $60 million.Its optimal capital structure is 60 percent equity and 40 percent debt.Its earnings before interest and taxes (EBIT) were $98 million for the year.The firm has $200 million in assets,pays an average of 10 percent on all its debt,and faces a marginal tax rate of 34 percent.If the firm maintains a residual dividend policy and will keep its optimal capital structure intact,what will be the amount of the dividends it pays out after financing its capital budget?

• A) $23.4 million
• B) $59.4 million
• C) $20.76 million
• D) $30.0 million
• E) $0

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Definitions:

Gear Ratios

The ratio of the teeth numbers between two meshing gears or the ratio of the rotation speed of two gears connected in a gearbox, affecting torque and speed.

Transfer Case

An auxiliary transmission used to split drive torque from the main transmission between rear and forward drive axles. Also known as a dropbox.

Differential Carrier

The housing that encloses the differential assembly in a vehicle, supporting the gears that allow the wheels to rotate at different speeds.

Backlash

The play or slop between mating mechanical parts, such as gears, which is the result of gaps between parts.