What will be the company dividend per share

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A Corporation is reviewing its capital budget for the upcoming year. It has paid a $3.00 dividend per share (DPS) for the past several years, and its shareholders expect the dividend to remain constant for the next several years. The company's target capital structure is 50% equity and 50% debt. It has 1,000,000 shares of common equity outstanding, and its net income is $10 million. The company forecasts that it will require $10 million to fund all of its profitable (that is positive NPV) projects or the upcoming year.

Question a. If it follows the residual dividend model, how much retained earnings will it need to fund its capital budget?

Question b. If it follows the residual dividend model, what will be the company's dividend per share and payout ratio for the upcoming year?

Question c. If it maintain its current $3.00 DPS for next year, how much retained earnings will be available for the firm's capital budget?

Reference no: EM132544957

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