Description
Managerial Finance
- Final earnings estimates for Chilean Health Spa & Fitness Center have been prepared for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock outstanding. As assistant to the CFO, you are asked to determine the yearly dividend per share to be paid depending on the following possible policies:
a) A stable dollar dividend targeted at 40 percent of average earnings over the 4-year period.
b) A small, regular dividend of $0.60 per share plus a year-end extra when the profits in any year exceed $20,000,000.
c) The year-end extra dividend will equal 50 percent of profits exceeding $20,000,000.
d) A constant dividend payout ratio of 40 percent.
Year 1
Year 2
Year 3
Year 4
Net profit
$18,000,000
$19,000,000
$23,000,000
$25,000,000
- The Patterson-Hale Trucking Company (PHT) needs to expand its fleet by 50 percent to meet the demands of two major contracts it just received to transport military equipment from manufacturing facilities scattered across the United States to various military bases. The cost of the expansion is estimated to be $14 million. PHT tries to maintain a 50% debt and 50% equity capital structure and pays out 50 percent of its earnings in common stock dividends each year.
a. If PHT earns $4 million in 2017, how much common stock will the firm need to sell in order to maintain its target capital structure?
b. If PHT wants to avoid selling any new stock but wants to maintain a constant dividend pay- out percentage of 50 percent, how much can the firm spend on new capital expenditures?
The following text refers to questions 3, 4 and 5.
The Sharpe Corporation’s projected sales for the first 8 months of 2014 are as follows:
January
$190,000
May
$300,000
February
$120,000
June
$270,000
March
$135,000
July
$225,000
April
$240,000
August
$150,000
Of Sharpe’s sales, 10 percent is for cash, another 60 percent is collected in the month following the sales, and 30 percent is collected in the second month following sales. November and December sales for 2016 were $220,000 and $175,000, respectively. Sharpe purchases its raw materials 2 months in advance of its sales. The purchases are equal to 60 percent of the final sales price of Sharpe’s products. The supplier is paid 1 month after it makes a delivery. For example, purchases for April sales are made in February, and payment is made in March. In addition, Sharpe pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of $22,500 are made each quarter, beginning in March. The company’s cash balance on December 31, 2016, was $22,000. This is the minimum balance the firm wants to maintain. Any borrowing that is needed to maintain this minimum is paid off in the subsequent month if there is sufficient cash. Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (0.12 * 1/12 * $60,500) owed for April and paid at the beginning of May.
- What are Sharpe Corporation’s total cash receipts for June 2017?
- What is Sharpe Corporation’s projected cash balance at the end of May 2017?
- Sharpe has $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?