Homework Answers
Capital Budget =$14 million
Debt/Equity ratio=1/3
Debt =3*Equity
Total Capital needed =$14 million =Debt +Equity =3*Equity+Equity =4 *Equity
Equity =(1/4)*(Total Capital needed)=1=(1/4)*14=$3.5 million
Additional Equity Needed =$3.5 million
Additional debt needed=3*3.5=$10.5 million
Net Income =$18 million
Equity requirement =$10.5 million
Residual earning or leftover earnings =18-10.5=$7.5 million
Dividend paid =$7.5 million
Dividend payout ratio =Dividend paid/Net Income =7.5/18=0.4167=41.67%
Number of shares outstanding =10 million
Dividend per share=$7.5 million/10 million=$0.75
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