Pierre Imports has a capital budget of $20 million. It wants to maintain a capital structure of 45 percent debt and 55 percent equity. This year it expects net income of $8 million. The company has 30 million authorized shares, and 10 million are outstanding. Last year the company paid a dividend of $0.30 per share.
a. How much equity is required?
b. How much external equity does the company need to raise if it follows a residual dividend policy?
c. How much external equity will the company require if it pays the same dividend as last year?