Cant dividend payout ratio policy) The Blunt Trucking Company needs to to transp

Question

Cant dividend payout ratio policy) The Blunt Trucking Company needs to to transport military equipment from manufacturing facilities scattered to be $10 million. Blunt maintains a 30 percent debt ratio and pays out gand its fleet by 40 percent to meet the demands of two major contracts it just across the U stimated alercent of its earnings in common stock dividends each year a. If Blunt earns $4 million in 2015, how much common stock will the firm need to sell in order to maintain its target capital structure? b. If Blunt wants to avoid selling any new stock but wants to maintain a constant dividend payout percentage of 50 percent, how much can the firm spend on new capital expenditures? 13-10. (Constant dollar dividend payout policy) Parker Prints is in negotiation with two ,- .. alec dramatically, The increase will

Explanation / Answer

13.9 Blunt trucking company is planning to expand its fleet by 40%. The cost of the expansion will be around $10 million. The target capital stucture is 70:30 which comprises of 30% debt capital.

a. If 30% debt ratio is maintained then Blunt needs $7 million of equity. It can get $4 million from its earnings then it will need to sell new equity shares worth $3 million to maintain its target capital structure.

b. If constant dividend payout policy is followed then the firm will pay out $2 million as dividend. If blunt doesn't issue new equity then it will only be able to spend $2 million on new capital expenditures.

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