Finance net capital expenditures

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Reference no: EM13963187

LimeAde, a large soft drink manufacturing firm, is faced with the decision of how much to pay out as dividends to its stockholders. It expects to have a net income of $1,000 (after depreciation of $500), and it has the following projects:

Project	Initial Investment	Beta	IRR (to Equity Inve
A	$500	2.0	21%
B	$600	1.5	20%
C	$500	1.0	12%

The firm's beta is 1.5 and the current risk-free rate is 6 percent. The firm plans to finance net capital expenditures (Cap Ex - Depreciation) and working capital with 20 percent debt. The firm also has current revenues of $5,000, which it expects to grow at 8 percent.

Working capital will be maintained at 25 percent of revenues. How much should the firm return to its stockholders as a dividend?

Reference no: EM13963187

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