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How much equity is required

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Pierre Imports has a capital budget of $20 million.It wants to maintain a capital structure of 45 percent debt and 55 percent equity.This year it expects net income of $8 million. The company has 30 million authorized shares, and 10 million are outstanding.Last year the company paid a dividend of $0.30 per share.

In Excel -

a. How much equity is required?

b. How much external equity does the company need to raise if it follows a residual dividend policy?

c. How much external equity will the company require if it pays the same dividend as last year?

d. What are 3 advantages following a residual dividend policy?

e. What are 3 disadvantages of following a residual dividend policy?

Reference no: EM131209197

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