Question
(XYZ) Company expects earnings before interest and tax (EBIT) of $2,200,000, for the coming year. The firm`s capital structure consists of 30% debt and 70%
(XYZ) Company expects earnings before interest and tax (EBIT) of $2,200,000, for the coming year. The firm`s capital structure consists of 30% debt and 70% equity, and its marginal tax rate is 40%. The cost of equity is 14%, and the company pays 10% rate on its 2,000,000$ long-term debt. The common stock outstanding is 200,000 shares. In its next capital budgeting cycle, the firm expects to fund one large positive NPV project costing $700,000, 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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