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KMS corporation has assets of $ 600 ​million, $ 60 million of which are cash. It...

KMS corporation has assets of $ 600 ​million, $ 60 million of which are cash. It has debt of $ 150 million. Suppose that KMS decides to initiate a​ dividend, but it wants the present value of payout to be $ 15 million. If its cost of equity capital is 11.7 %​, to what amount per year in perpetuity should it​ commit?

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Answer #1

Solution:

Payout = $15 million

Cost of equity =11.7%

Amount per year in perpetuity = $15*1000000*11.7%= $17,55,000

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