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1) Petersen Co. hascapital budget of $1,200,000. Company wishes to sustain a target capital structure which consists of 60 percent debt and 40 percent equity. Company predicts that its net income this year will be $600,000.  If company follows residual dividend policy, compute its payout ratio?

 

a. 0%
b. 20%
c. 40%
d. 60%
e. 80%

 

Q2) You presently own 100 shares of stock in Beverly Brothers Inc. Stock presently trades at $120 share. The company is contemplating 2-for-1 stock split. Which of the given best describes your position after proposed stock split takes place?

 

a. You will have 200 shares of stock, and stock will trade at or near $120 a share.

 

b. You will have 200 shares of stock, and stock will trade at or near $60 a share.

 

c. You will have 100 shares of stock, and stock will trade at or near $60 a share.

 

d. You will have 50 shares of stock, and stock will trade at or near $120 a share.

 

e. You will have 50 shares of stock, and stock will trade at or near $60 a share.

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