ABC Inc. predicts that earnings in the coming year will be $72,000,000. There are 8,000,000 shares and ABC Inc. maintains a debt-equity ratio of 5.
a) Calculate the maximum investment funds available without issuing new equity.
Maximum investment funds = $
b) What will be the increase in borrowing to have the above investment funds?
New borrowing = $
c) Suppose the firm uses residual policy. Planned capital expenditures total $45,000,000. Based on this information, what will the dividend per share be?
Dividend per share = $ per share
d) In part (c), how much borrowing will take place?
New borrowing = $
e) In part (c), What is the addition to retained earnings?
Addition to retained earnings = $
f) Suppose ABC Inc. plans no capital outlays for the coming year. What will the dividend per share be under a residual policy?
Dividend per share = $ per share
g) In part (f), what will new borrowing be?
New borrowing = $