Question 2 - Show your workings.

Kencana Berhad had total earnings last year of RM5,000,000 but expects total earnings to drop to RM4,750,000 this year because of a slump in the housing industry. There are currently 1,000,000 shares of common stock outstanding. The company has RM4,000,000 worth of investment to undertake this year. The company finances 40 % of its investments with debt and 60 % with equity capital. The company paid RM3.00 per share dividend last year.

a. If the company follows a pure residual dividend policy, how large the dividend per share will each shareholder receive this year? (5 Marks)

b. If the company maintains a constant dividend payout ratio each year, how large the dividend per share will each shareholder receive this year? (4 Marks)

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