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1) Company A has been performing reasonably well over the last several years. Table 8.A1 (on Page 252 of the text quot;Engineering Management...
1) Company A has been performing reasonably well over the last several years. Table 8.A1 (on Page 252 of the text "Engineering Management Challenges in the New Millennium by C.M. Chang, ISBN 0-13-144678-9) exhibits an abbreviated set of its financial data for the years 1998 to 2003.
A. The company's dividend-payout ratio to common stockholders has been in the range of 48% to 60%. Why would a company want to provide a steady stream of dividends to stockholders? Explain.
B. Why should companies acquire as much long term debt as they can reasonably afford without losing their financial flexibility? What is a benefit of this? Explain.
C. If the company has been quite successful in the past by having a low percentage of common stock equity; can they continue to be successful by maintaining this model? Why would a company want to increase its percentage of common stock equity in its capital structure?
D. For 2004, the company needs an influx of $30 million to finance business expansion. The company can use debt financing, equity financing, or a combination of both. If the percentage of long term debt is over 47% in 2003, and that percentage will increase to 53% if debt financing is utilized, why would it be a good idea to use equity financing to pay for the expansion instead of debt financing? Explain.
