Calculate amount of external equity needed

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Reference no: EM131905758

Tarmac Corporation plans a $15 million expansion. The firm wants to maintain a 55 percent debt-to-total-assets ratio in its capital structure. It also wants to maintain its past dividend policy of distributing 20 percent of last year's net income. Last year, net income was $6 million.

a. Calculate the amount of external equity needed.

b. If the company changed to a residual dividend policy, how much external equity will it need?

c. Is the company likely to change to a residual policy? Why or why not?

Reference no: EM131905758

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