Penticton Rock (PR) Inc. Predicts that earnings in the company year will be 54 million. There are 19 million shares, and PR maintains a debt/equity ratio of 1.2.
a) Calculate the maximum investment funds available without issuing new equity and the increase in borrowing that goes along with it.
b) Suppose the firm uses a residual divident policy. Planned capital expenditures total 74 million. Based on this information, what will the dividend per share be?
c) in part (b), how much borrowing will take place? what is the additional to retained earnings?
d) Suppose PR plans no captial outlays for the coming year. What will the dividend be under a residual policy? what will new borrowing be?