42 New-U Cosmetics Ltd is attempting to balance its policy variables with respect to its investment, financing and dividend requirements. The firm wishes to undertake new investments costing $100 000 over the next year. To maintain a consistent dividend policy, $80 000 will be needed to pay next year’s dividends. The firm wishes to retain its current capital structure of 50% debt and 50% equity. New equity funds in the form of retained earnings of $90 000 are available for investment and dividend requirements.

a How can the firm’s investment, financing and dividend requirements best be met?

b What action could the firm undertake if the investment needs totalled $150 000 rather than $100 000?