Bass Frozen Foods, Inc. has found three acceptable investment opportunities. The three projects require a total of $5 million in financing. It is the company's policy to finance its investments by using 40% debt and 60% common equity. The firm has generated $3.8 million dollars from its operations that could be used to finance the common equity portion of its investments.
a. What portion of the new investments will be financed by common equity and what portion by debt?
b. According to the residual dividend theory, how much would be paid out in dividends?