Tapley Inc

question 95

Multiple Choice

Tapley Inc.'s current (target) capital structure has a target debt-to-assets ratio (D/TA) of 60 percent.The firm can raise up to $5 million in new debt at a before-tax cost of 8 percent.If more debt is required,the initial cost will be 8.5 percent,and if more than $10 million of debt is required,the cost will be 9 percent.Net income for the previous year was $10 million,and it is expected to increase by 10 percent this year.The firm expects to maintain its dividend payout ratio of 40 percent on the 1 million shares of common stock outstanding.If it must sell new common stock,it would encounter a 10 percent flotation cost on the first $2 million,a 15 percent cost if more than $2 million but less than $4 million is needed,and a 20 percent cost if more than $4 million of new outside equity is required.Tapley's tax rate is 30 percent,and its current stock price is $88 per share.If the firm has an unlimited number of projects that will earn a 10.25 percent return,what is the maximum capital budget that can be adopted without adversely affecting stockholder wealth?

• A) $32.0 million
• B) $15.9 million
• C) $23.0 million
• D) $10.6 million
• E) $26.5 million

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Definitions:

Behavior Genetics

An investigative field that probes into the contribution of genetic inheritance and environmental factors to behavioral outcomes.

Heredity

The genetic handover of characteristics, either mental or physical, from one generation to the next.

Environmental Experience

The accumulation of knowledge or skill that a person gains from interacting with their surrounds or being exposed to different environmental conditions.

Positive Psychology

A branch of psychology that focuses on enhancing human strengths and wellbeing, rather than on disease and dysfunction.