QUESTION #1: Calculate Boehm’s total dividends for 2014 if its 2014 dividend payment is
set to force dividends to grow at the long-run growth rate in earnings.
QUESTION # 2: Calculate Boehm’s total dividends for 2014 if it continues the 2013
dividend payout ratio.
QUESTION # 3: It uses a pure residual policy with all distributions in the form of
dividends (35% of the $7.3 million investment is financed with debt).
QUESTION # 4: It employs a regular-dividend-plus-extras policy, with the regular
dividend being based on the long-run growth rate and the extra dividend being set
according to the residual policy.
QUESTION # 5: What is the incremental profit? To get a rough idea of the project’s
profitability, what is the project’s expected rate of return for the next year (defined as the
incremental profit divided by the investment)? Should the firm make the investment? Why
or why not?
QUESTION #6: Would the firm’s break-even point increase or decrease if it made the
change?
QUESTIONS # 7: What is the return on equity for each firm if the interest rate on current
liabilities is12% and the rate on long-term debt is 15%?
QUESTION # 8: Assume that the short-term rate rises to 20%, that the rate on new longterm
debt rises to 16%, and that the rate on existing long-term debt remains unchanged.
What would be the return on equity for Firm A and Firm B under these conditions?
QUESTION # 9: In 1983 the Japanese yen-U.S. dollar exchange rate was 250 yen per
dollar, and the dollar cost of a compact Japanese-manufactured car was $10,000. Suppose
that now the exchange rate is 120 yen per dollar. Assume there has been no inflation in the
yen cost of an automobile so that all price changes are due to exchange rate changes. What
would the dollar price of the car be now, assuming the car’s price changes only with
exchange rates?
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