Reference no: EM132554058

The Rose Water Company expects with some degree of certainty to generate the following net income and to have the following capital expenditures during the next five years (in thousands of dollars):

                                                   Year 1                Year 2                 Year 3

Net income (million $)                 2                      1.5                    2.5

Capital expenditure (million $)        1                        1.5                  5

The company currently has 1 million shares of common stock outstanding and pays annual dividends of $1 per share and it wishes to maintain an equity ratio of 60 percent.

Question i. Determine dividends per share and external financing required in each year under residual dividend policy.

Question ii. Determine dividends per share and the amounts of external financing that will be necessary if a dividend-payout ratio of 50 percent is maintained.