HELP FOR URGENT TEST!!!

Question 2

Dendrobium Berhad expects EBIT of RM6,000,000 for the coming year. The firm's capital structure consists of 40% debt and 60% equity, and its marginal tax rate is 30%. The company pays an 8% rate on its RM4,000,000 of long-term debt, and 1.5 million shares of common stock are outstanding. In its next capital budgeting cycle, the firm expects to fund one large positive NPV project costing RM3,000,000, and it will fund this project in accordance with its target capital structure. Last year, the company net income was RM3,500,000 and paid dividends of RM1.80 per share.

Required:

a) What portion of the new investments will be financed by common equity and what portion by debt? (4 Marks)

b) If the company follows a pure residual dividend policy, how much dividend per share will each shareholder receive this year? (7 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? (7 Marks)

d) If the company follows a constant dollar dividend policy, how large a dividend per share will each shareholder receive this year? (2 Marks)