1.The Clydesdale Corporation has an optimal capital structure consisting of 60 percent debt and 40 percent equity. The marginal cost of capital is calculated to be 14.5 percent. Total earnings available to common stockholders for the coming year total $1,500,000. Investment opportunities are:

Project

Investment

IRR (%)

A

$1,000,000

22

B

$250,000

18

C

$1,150,000

15

D

$300,000

14

a.According to the residual dividend theory, what should the firm's total dividend payment be?

b.If the firm paid a total dividend of $1,000,000, and restricted equity financing to internally generated funds, which projects should be selected? Assume the marginal cost of capital is constant.