Question
Charming Designer Berhad sells its hijab to few retail stores in Malaysia. The company has found two acceptable investment opportunities that require a total of
Charming Designer Berhad sells its hijab to few retail stores in Malaysia. The company has found two acceptable investment opportunities that require a total of RM2 million in financing. It is the company's policy to finance its investments by using 20% debt and 80% common equity. There are currently 200,000 shares of common stock outstanding. The firm has generated RM4.5 million last year but they expect total earnings will increase to RM4.8 million that could be used to finance the common equity portion of its investments. The company paid RM2.30 per share in dividends last year.
Required:
- What portion of the new investments will be financed by common equity and what portion by debt? (2 Marks)
- If the company follows a pure residual dividend policy, how much dividend per share will each shareholder receive this year? (4 Marks)
c. If the company maintains a constant dividend payout ratio each year, how large a dividend per share will each shareholder receive this year? (4 Marks
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