12. Julphar Co. uses the residual dividend model to determine its common dividend payout. This year the company expects its net income to be $2 million, and it expects to have a 25 percent common dividend payout ratio. The companys target common equity ratio is 40 percent, and the firm is financed with only common equity and debt. What is the companys forecasted total capital budget for the year? *

a. $1.25 million

b. $2.25 million

c. $2.50 million

d. $3.75 million

e. None of the above

13. Lilly Inc. expects to have net income of $800,000 during the next year. Its target, and current, capital structure is 40 percent debt and 60 percent common equity. The Director of Capital Budgeting has determined that the optimal capital budget for next year is $1.2 million. If Strategic uses the residual dividend model to determine next years dividend payout, what is the expected dividend payout ratio? *

a. 0%

b. 10%

c. 28%

d. 42%

e. None of the above

14. Zippy Inc. is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $3,600,000, its fixed assets turnover ratio equals 4.0, and its debt and common equity are each 50% of total assets. EBIT is $150,000, the interest rate on the firm's debt is 10%, and the tax rate is 40%. If the company follows a restricted policy, its total assets turnover will be 2.5. Under a relaxed policy its total assets turnover will be 2.2. Assume that the company believes that if it adopts a restricted policy, its sales will fall by 15% and EBIT will fall by 10%, but its total assets turnover, debt ratio, interest rate, and tax rate will all remain the same. In this situation, what's the difference between the projected ROEs under the restricted and relaxed policies? *

a. 2.24%

b. 2.46%

c. 2.70%

d. 2.98%

e. None of the above

15. A firm is offered trade credit terms of 2/8, net 45 days. The firm does not take the discount, and it pays after 58 days. What is the effective annual cost of not taking this discount? (Assume a 365-day year.) *

a. 21.63%

b. 13.35%

c. 14.90%

d. 15.89%

e. None of the above