As the compensating balance would also have to | ||
be borrowed, to get S10M, the borrowing should | ||
be for 10/90% = | $ 11.11 | million |
The effective rate of interest for the option will be: | ||
= 11.11*6%/10 = | 6.67% | |
This interest rate will be applicable for all the 5 years. | ||
Hence, the second option is better. |
If dividend payout ratio is increased to 100%, what happens to retained earnings? A firm has...
A firm plans to grow at an annual rate of at least 25%. Its return on equity is 39%. Suppose the firm has a debt-equity ratio of 1/4. What is the maximum dividend payout ratio it can maintain without resorting to any external financing? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Maximum dividend payout ratio Maximum dividend payout ratio