Respuesta :
Answer:
37.5%
Explanation:
Given:
Earnings per share, EPS = $3.00
Outstanding shares of stock = 500,000
Capital budget = $800,000
Dividend per share = $2.00
Now,
The total earning of the Warren Supply Inc. = EPS × Outstanding shares
or
Total earning of the Warren Supply Inc. = $3.00 × 500,000 = $1,500,000
Total Dividends paid = Dividend per share × Outstanding shares
or
Total Dividends paid = $2.00 × 500,000 = $1,000,000
Therefore,
the total retained earnings = Total earning - Total Dividends paid
or
the total retained earnings = $1,500,000 - $1,000,000 = $500,000
Thus,
the capital budget that must be financed with debt
= Forecasted capital budget - Total retained earning
= $800,000 - $500,000
= $300,000
Hence,
the percentage of capital budget that must be financed with debt
= [tex]\frac{\textup{capital budget that must be financed with debt}}{\textup{Capital budget}}\times100[/tex]
on substituting the respective values, we get
= [tex]\frac300000}{800000}\times100[/tex]
Percentage of capital budget that must be financed with debt = 37.5%
The percentage of the capital budget must be financed with debt is: e. 37.50%.
Percentage of the capital budget
First step
Total retained earnings=( $3.00 × 500,000)-($2.00 × 500,000)
Total retained earnings = $1,500,000 - $1,000,000
Total retained earnings= $500,000
Second step
Capital budget financed with debt = Forecasted capital budget - Total retained earning
Capital budget financed with debt= $800,000 - $500,000
Capital budget financed with debt= $300,000
Third step
Percentage of capital budget=$300,000/$800,000×100
Percentage of capital budget=37.50%
Inconclusion the percentage of the capital budget must be financed with debt is: e. 37.50%.
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