Calculate the dividends paid and total external financing

Reference no: EM132984229

Problem

ABC firm has a debt to equity ratio of 2.34 (that they wish to maintain) and new investments would cost $75 million this year. The firm expects earnings of $25 million this year.

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

b) Calculate the dividends paid and total external financing required if the firm has a fixed payout ratio of 25%.

Reference no: EM132984229

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