Working capital will be maintained at 25 percent of revenues. How much should the firm Land and buildings $500,000 Long-term $1,000,000 return to its stockholders as a dividend? debt Current assets $1,000,000 Equity $1,500,000 15. NoLone, an all-equity manufacturing firm, has net income of $100 million currently (100,000 and expects this number to grow at 10 percent a year for the next three years. The firm's shares) working capital increased by $10 million this year and is expected to increase by the Total $3,000,000 Total $3,000,000 same dollar amount each of the next three years. The depreciation is $50 million and is Boston Turkey expects its revenues to grow 10 percent next year and its expenses to remain at 40 expected to grow 8 percent a year for the next three years. Finally, the firm plans to percent of revenues. The depreciation and interest expenses will remain unchanged at $100,000 invest $60 million in capital expenditure for each of the next three years. The firm pays next year. The working capital, as a percentage of revenue, will also remain unchanged next 60 percent of its earnings as dividends each year. NoLone has a cash balance currently of year. $50 million. Assuming that the cash does not earn any interest, how much would you The managers of Boston Turkey claim to have several projects available to choose from expect to have as a cash balance at the end of the third year? next year, in which they plan to invest the funds from operations, and they suggest that the firm 16. Boston Turkey is a publicly traded firm, with the following income statement and balance really should not be paying dividends. The projects have the following characteristics: sheet from its most recent financial year: Project Equity Investment Expected Annual Cash Beta Flow to Equity Income Statement A $100,000 12,500 1.00 Revenues $1,000,000 B $100,000 14,000 1.50 - Expenses $400,000 C $50,000 8.000 1.80 Depreciation $100,000 D $50,000 12,000 2.00 EBIT $500,000 The Treasury bill rate is 3 percent, and the Treasury bond rate is 6.25 percent. The firm plans to Interest |$100,000 finance 40 percent of its future net capital expenditures (Cap Ex - Depreciation) and working Expense capital needs with debt. Taxable $400,000 a How much can the company afford to pay in dividends next year? Income b Now assume that the firm actually pays out $1.00 per share in dividends next - Tax $160,000 year. The current cash balance of the firm is $150,000. How much will the cash balance of Net Income $240,000 the firm be at the end of next year, after the payment of the dividend? Balance Sheet 17. Z-Tec, a firm providing Internet services, reported net income of $10 million in the most Assets Liabilities recent year, while making $25 million in capital expenditures (depreciation was $5 million). The Property, plant, and |$1,500,000 Accounts $500,000 firm had no working capital needs and uses no debt. equipment payable Can the firm afford to pay out dividends right now? Why or why not