Question

19) Suppose a firm pays total dividends of $320,000 out of net income of $2.7 million. What would the firm's payout ratio be?

A) .32
B) 1.19
C) .119
D) 8.438

20) Calculating Fees on a Loan Commitment You have approached your local bank for a start-up loan commitment for $1,500,000 needed to open an auto repair store. You have requested that the term of the loan be one-year. Your bank has offered you the following terms: size of loan commitment = $1,500,000, term = 1 year, up-front fee = 25 basis points, back-end fee = 40 basis points. If you take down 95 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.

A) $ 3,750
B) $ 9,450
C) $ 6,000
D) $ 4,050

Answer 1

Question 19.

Payout ratio = Total dividend income / Total net income of the firm

Payout ratio = $320,000 / $2,700,000

= 0.119 ( C)

Question 20.

Total amount of loan = $1,500,000

Up front fees = 25 basis point or 0.25%

Back end fees = 40 basis point or 0.40%

Total take down is 95% of loan commitment

Total fees = ( Upfront fees + Back end fees )

Total up front fees = $1,500,000 * 0.25%

= $3750

Total Back up fees = [$1,500,000 - (1 - 0.95) ] * 0.40%

= $300

Total fees on loan commitment = ($3750 + $300 )

= $4050 ( D )