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Residual dividend policy

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Polar ltd predicts that profit in the coming year will be 32 million. There are 8 million shares in issue and the company maintains a debt/equity ratio of 2.

a. Calculate the maximum funds that will be available for investments without issuing new equity and the increase in borrowing that goes along with it.

b. Suppose the firm uses a residual dividend policy, and planned capital expenditures total 40 million, what will the dividend per share amount be.?

c. In part (b) how much borrowing will take place?

d. If the company plans no capital outlays for the coming year, what is the dividend payout ratio and the associated new borrowing?

Reference no: EM131152120

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