TOPIC 3 (20 points)

Suppose that IWT completed its Initial Public Offering and that the capital expenditures planned for next year amount to 112.5 million.

It has been determined that the current optimal capital structure of the company is 80% equity and 20% loan and it is predicted that the company's profits will amount to 140 million.

I need the anwers to the following questions.

1. Use the residual dividend policy assumption to determine the company's total cash distributions. (5 points)

2. Suppose now that the distribution is in the form of a dividend and that the company has 100,000,000 shares in circulation. What will be the distributed profit ratio? What will be the projected dividends per share? What will happen to the distributed earnings ratio and dividend per share if projected earnings fall to 90 million? And what if they increase to 160 million? (10 points)

(3) In general, how are distributed profits affected by changes in investment opportunities based on the residual dividend policy assumption? (5 points)