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Compute How much can the firm spend on new capital

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Reference no: EM132490601

Constant dollar dividend payout policy

Parker Prints is in negotiation with two of its largest customers to increase the? firm's sales dramatically. The increase will require that Parker expand its production facilities at a cost of $25 million. Parker expects to pay out $6.5 million in dividends to its shareholders next year. Parker maintains a 20 percent debt ratio in its capital structure.

Question a. If Parker earns $20 million next year, how much common stock will the firm need to sell in order to maintain its target capital structure?

Question b. If Parker wants to avoid selling any new stock, how much can the firm spend on new capital expenditures?

Reference no: EM132490601

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