Description of dividend payout

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Reference no: EM1337407

A company is evaluating its dividend policy. Selected data for the company are shown below.

Capital budget $10,000,000
Desired capital structure 40% Debt
60% Equity
Expected net income $7,000,000
Outstanding shares 5,000,000
Last annual dividend per share $0.50

a. If the company follows a residual policy, how much will it pay out in dividends?

b. If the company decides to maintain last year's dividend, how much will it pay out in dividends this year?

c. What are the company's options for raising the money needed for the capital budget?

Reference no: EM1337407

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