1. Assume a firm is planning to raise 15,000capital from the market.

The firm has a long-term and sustainable capital structure policy as follows of

70% equity and 30% debt. Firms net income has been projected to be 11, 000.

Tasks: Using the residual dividend model answer the following questions:

1. How much would this firm pay dividend per share?
2. What would the payout ratio?
3. What happens if firms net income was projected at 5,000instead of 11,000? Or 13,000?
4. What are some of the advantages and disadvantages of the residual dividend model? List and explain at least two for each.

2. The CEO of a company is initiating planning for the company's operations next year, and she wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Euros are in millions.

Last year's sales = S0 350 Last year's accounts payable 40

Sales growth rate = g 30% Last year's notes payable 50

Last year's total assets = A0* 500 Last year's accruals 30

Last year's profit margin = PM 5% Target payout ratio 60%

Task: Estimate and interpret the self-supporting growth rate?