ABC industries has for many years enjoyed a moderate but stable growth in sales and earnings. In recent years, it is facing a stiff completion in its plastic product line and, consequently, its sales have been declining. Apprehending further decline in its sales, its management planning to move eventually out of plastic business altogether and develop new diversified product line in growth-oriented industries. To execute the proposed investment plan of this year, a capital outlay of Rs. 120 million is necessary to purchase new facilities to start manufacturing a new product; the estimated rate of return on fresh investment is 20 percent. The company has been paying a dividend of Rs. 15 per share on 40 million outstanding common shares. The dividend policy has been to maintain a stable rupee dividend, raising it only when it appears that earnings have reached a new, permanently higher level. The directors may change such a policy if there are compelling reasons to do so. Total earnings of current year are Rs. 100 million. The current market price of equity share is Rs. 150 and the firm's current leverage ratio is 40 percent. (Marks. 7) a. If the company follows the residual distribution model, what will be retention rate for this year?

b. If the company follows the residual dividend model, what will be the dividend per share and payout ratio for the upcoming year?

c. If the company maintains its current DPS for next year, how much retain earnings will be available for the firm's capital budget?

d. Can the company maintain its current capital structure, DPS, and maintain a capital budget of Rs. 120 million without having to raise new common stock?