Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Lenberg Lens Company believes in the dividends-as-a-residual philosophy of dividend policy. This years earnings are expected to total $10 million. A very conservative company, Lenberg

Lenberg Lens Company believes in the dividends-as-a-residual philosophy of dividend policy. This years earnings are expected to total $10 million. A very conservative company, Lenberg is financed solely with common stock. The required rate of return on retained earnings is 12 percent, whereas the cost of newly raised capital is 14 percent because of issuance costs. a. If Lenberg has $6 million of investment projects having expected returns greater than 12 percent, what total amount of dividends should Lenberg pay? b. If Lenberg has $12 million of investment projects having expected returns greater than 14 percent, what total amount of dividends should Lenberg pay? c. What factors, other than its belief in the residual theory of dividends, should Lenberg consider in setting its dividend policy in part b?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Handbook Of Environmental And Sustainable Finance

Authors: Vikash Ramiah, Greg N. Gregoriou

1st Edition

012803615X, 978-0128036150

More Books

Students also viewed these Finance questions