Mah Seng Company Berhad had total earnings last year of $5 million but expects total earnings to drop to $4,750,000 this year because of a slowdown in the consumer sector. There are currently 1 million shares of common stock outstanding. The company has $4 million worth of investments to undertake this year. The company finances 40% of its investments with debt and 60% with equity capital. The company paid $3 per share in dividends last year.

(a)If the company follows a pure residual dividend policy, how large a dividend will each shareholder receive this year?

(6 marks)

(b)If the company maintains a constant dividend payout ratio each year, how large a dividend will each shareholder receive this year?

(8 marks)

(c)If the company follows a constant dollar dividend policy, how large a dividend will each shareholder receive this year?