Wells manufacturing Co Ltd has projected its investment opportunities over a five year planning horizon. The cost of each year's investment and the amount of internal funds available for reinvestment for that year are given below. The firm's debt-equity ratio is 66.7. There are currently 125,000 shares.

a. What would be the dividend each year if the residual dividend theory were used on year-to-year basis?

b. what target stable dividend can Wells establish by using the long term residual dividend theory over the future planning horizon?

c. Why might a residual dividend policy applied to the five years as opposed to individual years be preferable?

Year 1: Cost of Investment=$360,000, Internal Fund Available for Reinvestment or for Dividends=$225,000

Year 2: Cost of Investment=$450,000, Internal Fund Available for Reinvestment or for Dividends=$440,000

Year 3: Cost of Investment=$230,000, Internal Fund Available for Reinvestment or for Dividends=$600,000

Year 4: Cost of Investment=$890,000, Internal Fund Available for Reinvestment or for Dividends=$400,000

Year 5: Cost of Investment=$600,000, Internal Fund Available for Reinvestment or for Dividends=$400,000