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Clothing Corporation uses a residual dividend pol...

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Clothing Corporation uses a residual dividend policy. The company expects earnings to be $5,000,000 and has a D/E ratio of 1.2 There will be no external equity financing. a)Calculate the maximum funds they can raise if they maintain their D/E ratio. b) If they need to raise just $5,000,000 for a new project, how much can be paid out as dividends. c) Assume that the D/E ratio of 1.2 is no longer required. If the firm wants to maintain a dividend payout ratio = 60% but they still need $5,000,000 for the new project then how can this firm satisfy the objectives? Show all calculations and explain what this firm must do.

 

Paper#8644 | Written in 18-Jul-2015

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