Banerjee Inc

question 23

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 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

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Definitions:

Fixed Assets

Long-term tangible assets, such as buildings, machinery, and equipment, that are used in the operations of a business and are not expected to be consumed or converted into cash within a year.

Investing Activity

A category in the cash flow statement that shows how much money has been spent on or gained from investment operations, excluding amounts related to day-to-day operations.

Indirect Method

A method for preparing the cash flow statement where net income is adjusted for non-cash transactions, deferred income, and changes in working capital to compute net cash from operating activities.

Statement Of Cash Flows

A financial report summarizing the amount of cash and cash equivalents entering and leaving a company.