Question
(XYZ) Company expects earnings before interest and tax (EBIT) of $7,000,000, for the coming year. The firm`s capital structure consists of 35% debt and 65%
(XYZ) Company expects earnings before interest and tax (EBIT) of $7,000,000, for the coming year. The firm`s capital structure consists of 35% debt and 65% equity, and its marginal tax rate is 35%. The cost of equity is 14%, and the company pays 9% rate on its$3,000,000 long-term debt. The common stock outstanding is 2,000,000 shares. In its next capital budgeting cycle, the firm expects to fund one large positive NPV project costing $2,000,000, and it will fund this project in accordance with its target capital structure. If the firm follows a residual dividend policy and has no other project what its expected dividend payout ratio (DPR)? What its dividend per share (DPS)? What its earnings per share (EPS)?
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