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Calculate the maximum possible investment funds

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Reference no: EM133004430

Peninsular Rock (PR) Inc. predicts that earnings in the coming year will be $54 million. There are 19 million shares, and PR maintains a debt/equity ratio of 1.50.

i) Calculate the maximum possible investment funds available for upcoming projects without issuing new equity and the increase in borrowing.

ii) Suppose the firm uses a residual dividend policy. Planned capital expenditures total $72 million. Based on this information, what will the dividend per share be?

iii) Suppose PR plans no capital outlays for the coming year. What will the dividend be under a residual policy? What kind of problem may this policy create?

Reference no: EM133004430

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