Lenberg Lens Company believes in the dividends as a residual philosophy of dividend policy. This years earnings

Question:

Lenberg Lens Company believes in the “dividends as a residual” philosophy of policy. This year’s earnings are expected to total $10 million. A very conservative company, Lenberg is financed solely with common stock. The required rate of return on retained earnings is 12 percent, whereas the cost of newly raised capital is 14 percent because of issuance costs.
a. If Lenberg has $6 million of investment projects having expected returns greater than 12 percent, what total amount of dividends should Lenberg pay?
b. If Lenberg has $12 million of investment projects having expected returns greater than 14 percent, what total amount of dividends should Lenberg pay?
c. What factors, other than its belief in the residual theory of dividends, should Lenberg consider in setting its policy in part b?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...