Coppell Timber Company had total earnings last year of 5,000,000, but expects total earnings to drop to
4,750,000 this year because of a slump in the housing industry. There are currently 1,000,000 shares of common
stock outstanding.
The company has 4,000,000 worth of investments to undertake this year. The company
finances 40 percent of its investments with debt and 60 percent with equity capital. The company paid 3.00 per
share in dividends last year.
a. If the company follows a pure residual dividend policy, how large a dividend will each shareholder receive
this year?
b. If the company maintains a constant dividend payout ratio each year, how large a dividend will each
shareholder receive this year?
c. If the company follows a constant dollar dividend policy, how large a dividend will each shareholder
receive this year?
Question 2
Use the percent of sales method of preparing pro forma financial statements to determine the
projection for next year's cost of goods sold.
Make the following assumptions: current year's sales
are 27,800,000; current year's cost of goods sold is 17,528,000; sales are expected to rise by 30.
What is the projection for next year's cost of goods sold?
A) 20,481,000 B) 21,459,200 C) 21,138,900 D) 22,786,400
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