Banerjee Inc

question 10

Multiple Choice

Banerjee Inc.wants to maintain a target capital structure with 30% debt and 70% equity.Its forecasted net income is $550,000,and its board of directors has decreed that no new stock can be issued during the coming year.If the firm follows the residual dividend model,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:

EBIT

Earnings Before Interest and Taxes; a measure of a company's profitability that focuses on earnings generated from its core operations before the impact of financial and tax activities.

Business Risk

The exposure a company or investor faces due to uncertainties in the market or industry that could affect its profitability.

Fixed Assets Turnover Ratio

A financial metric that measures a company's ability to generate sales from its fixed assets, such as property, plant, and equipment.

EPS

Earnings Per Share, a financial metric indicating the portion of a company's profit allocated to each outstanding share of common stock.