Tarmac Corporation plans a $15 million expansion. The firm wants to maintain a 55 percent debt-to-total-assets ratio in its capital structure. It also wants to maintain its past dividend policy of distributing 20 percent of last year's net income. Last year, net income was $6 million.
a. Calculate the amount of external equity needed.
b. If the company changed to a residual dividend policy, how much external equity will it need?
c. Is the company likely to change to a residual policy? Why or why not?