helpQUESTION $7$

a$.$ Ven Cap Corporation is reviewing its capital budget for the coming year. It has

paid a RM$3\mathrm{.}00$ dividend per share $($DPS$)$ for the past several years, and its

shareholders expect the dividend to remain constant for the next several years.

The company's target capital structure is $60$ percent equity and $40$ percent debt

and has common stocks outstanding of $1\mathrm{.}0$ million shares. The company

recorded a net income of RM$8$ million and forecasts that it would require RM$10$

million to fund all of its positive NPV projects for the coming year.

Required:

i$.$ If the company follows the residual dividend model, how much retained earnings

will it need to fund its capital budget?

ii$.$ If the company follows the residual dividend model, what would be the

company's dividend per share and dividend payout ratio for the coming year?

iii. If the company maintains its current RM$3\mathrm{.}00$ DPS for the next year, how much

retained earnings will be available to support the company's capital budget? Can

the company maintain its current capital structure, maintain the RM$3\mathrm{.}00$ DPS$,$

and maintain a RM$10$ million capital budget without having to raise new common

stock? Provide reason.

b$.$ Why does corporation carry out merger? What are the benefits of merger?