Question
Your firm practices a strict residual dividend policy and maintains a capital structure of 25% debt and 75% equity. Net earnings for the year are
Your firm practices a strict residual dividend policy and maintains a capital structure of 25% debt and 75% equity. Net earnings for the year are $3 million.
a) What is the maximum amount of capital spending possible without new equity?
b) If planned investment outlays for the coming year are $3.6 million, will your firm be paying a dividend, and if so, how much will it be paying?
c) Based on planned investment outlays of $3.6 million, what are your firm's retention and dividend payout ratios?
d) If your firm's next annual dividend payment is expected to be $0.25 and your firm's current share price is $7.00, what is the dividend yield (correct to two decimal places)?
Please show all the work, thanks!
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