Question: (Constant dividend payout ratio policy) The Daher Trucking Company needs to expand its fleet by 20 percent to meet the demands of two major contracts it just received to transport aeronautic equipment from manufacturing facilities scattered across Europe to the assembly sites in France and Germany. The cost of the expansion is estimated to be €10 million. Daher maintains a 50 percent debt ratio and pays out 30 percent of its earnings in common stock dividends each year.
a. If Daher earns €4 million in 2015, how much common stock will the firm need to sell in order to maintain its target capital structure and its constant dividend payout ratio policy?
b. If Daher wants to avoid selling any new stock but wants to maintain a constant dividend payout percentage of 30 percent, how much can the firm spend on new capital expenditures?