The Following Facts Apply to Your Company: Target Capital Structure

Multiple Choice

The following facts apply to your company: Target capital structure: 50% debt; 50% equity.
EBIT: $200 million.
Assets: $500 million.
Tax rate: 40%.
Cost of new and old debt: 8%.
Based on the residual distribution policy (with all distributions in the form of dividends) , the payout ratio is 60 percent. How large (in millions of dollars) will the capital budget be?

A) $ 43.2
B) $ 50.0
C) $ 64.8
D) $ 86.4
E) $108.0