Calculate the maximum investment funds

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Question - Xavier Corporation predicts that net income in the coming year will be $300 million. There are 30 million shares of common stock outstanding and Xavier maintains a debt to equity ratio of .8. The current market price per share for Xavier is $100.

a) If Xavier wishes to maintain its present debt-equity ratio, calculate the maximum investment funds available without issuing new equity and the increase in borrowing that goes along with it.

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

c) Suppose Xavier plans no capital outlays for the coming year. What will be the dividend yield and the dividend per share, assuming that Xavier uses the residual dividend policy?

Reference no: EM132248496

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