a and b pleaseee 303 6. Weaver Chocolate Co. expects to earm $3,500 during the c

Question

a and b pleaseee

303 6. Weaver Chocolate Co. expects to earm $3,500 during the current year and its dividend payout ratio is 65%. The target capital structure calls for 55% equity financing. Weaver Co. wants to stay away from new common stock issue. a Compute the retained earnings breakpoint for the compary. U O Weaver Co. has a WACC of 8% and faces the choice of the following projects: Project A will cost $1,000 to implement and will produce a rate of return of /% per year, Project B will cost $500 and will produce a return of 4% per year, Project C will cost $750 and will produce a return of 8.1% per year, b. Project D will cost $900 and will produce a return of 8.5% per year. Bared on your answer in part (a) which progjectfo) should the company acrept unthout isning new com mon equity? Why do you think so

Explanation / Answer

a)

Earnings = $3500

Payout ratio = 65%

Equity financing = 55%

Break point for retained earnings = Retained Earnings/Equity financing

= 3500*(1-0.65)/0.55

= 1225/0.55 = 2227.27

b)

Project C will cost $750 and will produce a return of 8.1 % per year

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.