Magnesium Corporation has a policy of retaining 75% of its income. The growth rate of the company remains to be constant at 3%. The following are available options for the corporation in its capital structure: Debt ratio Expected EPS P30 Cost of equity 10% 25% 50% 25 15% 75% 20 20%

Magnesium Corporation has a policy of retaining 75% of its income. The growth rate of the company remains to be constant at 3%. The following are available options for the corporation in its capital structure: Debt ratio Expected EPS P30 Cost of equity 10% 25% 50% 25 15% 75% 20 20%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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Question

100%

1. What is the Stock Price when the Equity Ratio is 75%?

a. 107.14

b. 52.08

c. 29.41

d. 75%

e. 25%

2. What is the Stock Price when the Equity Ratio is 50%?

a. 107.14

b. 52.08

c. 29.41

d. 75%

e. 25%

3. What is the Stock Price when the Equity Ratio is 25%?

a. 107.14

b. 52.08

c. 29.41

d. 75%

e. 25%

4. What is the equity ratio on the optimal capital structure?

a. 107.14

b. 52.08

c. 29.41

d. 75%

e. 25%

5. What is the debt ratio on the optimal capital structure?

a. 107.14

b. 52.08

c. 29.41

d. 75%

e. 25%

6. What is the Stock Price on the optimal capital structure?

a. 107.14

b. 52.08

c. 29.41

d. 75%

e. 25%

Magnesium Corporation has a policy of retaining 75% of its income. The growth rate of the company remains
to be constant at 3%. The following are available options for the corporation in its capital structure:
Debt ratio
Expected EPS
P30
Cost of equity
10%
25%
50%
25
15%
75%
20
20%

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