Grading Summary |

These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section below. | Date Taken: | 9/25/2011 | Time Spent: | 1 h , 14 min , 19 secs | Points Received: | 90 / 100 (90%) | | Question Type: | # Of Questions: | # Correct: | Short | 6 | N/A | | |

Grade Details |

1. | Question : | (TCO C) Pate & Co. has a capital budget of $3,000,000. The company wants to maintain a target capital structure that is 15 percent debt and 85 percent equity. The company forecasts that its net income this year will be $3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment?

(a) $205,000
(b) $500,000
(c) $950,000
(d) $2,550,000
(e) $3,050,000 | | | Student Answer: | | Answer: C $950,000 Residual Dividend Model: Capital budget is $3,000,000 % Equity is 85% Net income is $3,500,000 Dividends paid = Net income - (% Equity * Capital budget) Dividends paid = $3,500,000 - (85% * $3,000,000) Dividends paid = $950,000 | | Instructor Explanation: | Answer is: c
Text: pp. 570-572 - Residual Dividends, Chapter 14
The amount of new investment which must be financed with equity is:
$3,000,000 x 85% = $2,550,000.
Since the firm has $3,500,000 of net income, $950,000 = $3,500,000 - $2,550,000 will be left for dividends. | | | | Points Received: | 10 of 10 | | Comments: | | | | 2. | Question : | (TCO F) The following data applies to Saunders Corporation's convertible bonds:
Maturity: 10
Stock price: $30.00
Par value: $1,000.00
Conversion price: $35.00
Annual coupon: 5.00%
Straight-debt yield: 8.00%
What is the bond's straight-debt value?

(a) $684.78
(b) $720.82
(c) $758.76
(d) $798.70
(e) $838.63 | | | Student Answer: | | Answer: A