Should the company follow the residual dividend policy

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Reference no: EM131825602

Connor Company is evaluating its dividend policy. Selected data for the company are shown below.

Capital budget $5,000,000

Desired capital structure 30% Debt 70% Equity

Expected net income $3,000,000

Outstanding shares 10,000,000

Last annual dividend per share $0.25

a. If the company follows a residual policy, how much will it pay out in dividends?

b. If the company decides to maintain last year's dividend, how much will it pay out in dividends this year?

c. What are the company's options for raising the equity needed for the capital budget?

d. Should the company follow the residual dividend policy? Why or why not?

e. Which is better for the stockholder--cash dividends or stock repurchases? Why?

Reference no: EM131825602

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