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Problem 2 (22 marks) Carter Construction Company has a debt to equity ratio of 3 . New investments for the year would cost $36 million.
Problem 2 (22 marks) Carter Construction Company has a debt to equity ratio of 3 . New investments for the year would cost $36 million. The firm expects net earnings of $12 million this year. a) Calculate the debt and equity financing required for the new investments, dividends paid, and external debt and equity financing required if the firm follows a residual dividend policy and wants to maintain its debt to equity ratio. (10 marks) b) Calculate the dividends paid and external debt and equity financing required if the firm has a fixed payout ratio of 60% and it wants to maintain its debt to equity ratio. (6 marks) 1 c) Calculate the dividends paid and external financing required if the firm has a policy of growing dividend at a steady rate of 3% every year and it wants to maintain its debt to equity ratio. The last dividends paid are equal to $10 million. (6 marks)
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