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Calculate the maximum investment funds

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Williams Co. predicts that earnings in the coming year will be $95 million. There are 15 million shares, and Williams maintains a debt-equity ratio of 2.5.

a) Calculate the maximum investment funds available without issuing new equity and the increase in borrowing that goes along with it.

b) Suppose the firm uses a residual dividend policy. Planned capital expenditures total $150 million. Based on this information, what will the dividend per share be? What is the payout ratio?

c) In part (b), how much borrowing will take place? What is the addition to retained earnings?

d) Suppose Williams plans no capital outlays for the coming year. What will the dividend be under a residual policy? What will new borrowing be?

Reference no: EM131177731

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