A corporation expects to have earnings available to common shareholders (net profits minus preferred dividends) of $1,000,000 in the coming year. The firm plans to pay 40 percent of earnings available in cash dividends. If the firm has a target capital structure of 40 percent long-term debt, 10 percent preferred stock, and 50 percent common stock equity, what capital budget could the firm support without issuing new common stock?
A. $2,000,000.
B. $ 600,000.
C. $1,200,000.
D. $800,000.
Answer:C
A corporation expects to have earnings available to common shareholders (net profits minus preferred dividends) of $1,000,000 in the coming year. The firm plans to pay 40 percent of earnings available in cash dividends. If the firm has a target capital structure of 40 percent long-term debt, 10 percent preferred stock, and 50 percent common stock equity, what capital budget could the firm support without issuing new common stock?
A. $2,000,000. B. $ 600,000. C. $1,200,000. D. $800,000.