Calculate the dividends paid and external equity financing

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Reference no: EM131057924

Knox Corp. has a debt to equity ratio of 3 and new investments would cost $40 million this year. The firm expects earnings of $15 million this year.

a) Calculate the debt and equity financing amount needed for the new investments if the firm wants to maintain its debt to equity ratio.

b) Calculate the dividends paid and external equity financing required if the firm follows a residual dividend policy.

c) Calculate the dividends paid and external financing required (debt and equity) if the firm has a fixed payout ratio of 80% and it wants to maintain its debt to equity ratio.

d) Calculate the dividends paid and external financing required (debt and equity) if the firm has a policy of growing dividends at a steady rate of 10% every year and it wants to maintain its debt to equity ratio. The last dividends paid were equal to $10 million

Reference no: EM131057924

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