Hi there, the top is the question and the answer is on the bottom. How did they find external finance 0 in year 1 and 0.08 in year 2 (look iv answer)

Dividend Policy & Inventory Management washa 1. The management of Amco Ltd has estimated the company's expected earnings available for ordinary shareholder, after-tax net cash flow and capital expenditure for the next three years as follows: Year Earnings Net Cash Flow Capital Expenditure (S'000) (S'000) (S"000) 1 1,200 1.800 1,000 2 1.100 1,500 1,500 3 2.100 2.400 2.000 Amco Ltd has 5 million ordinary shares issued and paid up at a par value of $1.00 and SI million reserve. Currently, the company pays a dividend of 50.20 per share. You are required to calculate for each year: i) The amount of external financing required if the present dividend per share is maintained ii) The dividend per share based on a residual dividend policy. iii) The dividend per share if investment is financed 80% with retained earnings and 20% with debt. iv) The dividend per share and the amount of external financing if a dividend-payout ratio of 50% is maintained v) Indicate the effects on shareholders' equity if the company pays the dividend based on a dividend payout ratio of 50%. Dividend Policy & Inventory Management Question 1 CF he VICE i) External finance (year 1) - Sim +(50.20 x 5m) - $1.8m = $0.2m External finance (year 2) =$1.5m +(50.20 x 5m) - $1.5m = Sim External finance (year 3) - $2m +($0.20 x 5m) - $2.4m = $0.6m NE ii) Dividends per share (year 1) -($1.8m - Sim)/5m = $0.16 Dividends per share (year 2) = ($1.5m - $1.5m)/5m = $0 Dividends per share (year 3) = ($2.4m - $2m)/5m - $0.08 NEF CERE iii) Dividends per share (year 1) =($1.8m - Sim x 0.8)/5m - $0.20 Dividends per share (year 2) = ($1.5m - $1.5m x 0.8)/5m = $0.06 Dividends per share (year 3) = ($2.4m - $2m x 0.8)/5m= $0.16 iv) Dividends per share (year 1) = ($1.2m x 0.5) /5m - $0.12 Dividends per share (year 2) = ($1.1m x 0.5)/5m = $0.11 Dividends per share (year 3) = (S2.1m x 0.5) /5m = $0.21 External finance (year 1) = $0 (residual DPS > $0.12) External finance (year 2) = ($0.11 - $0) 5m = $0.55m External finance (year 3) = ($0.21 - $0.08) x 5m = $0.65m