Clynne Resources expects earnings this year to be $2 per share. Clynne plans to pay a dividend of $0.70 for the year. During the year, Clynne expects to borrow $10 mil- lion in addition to its already outstanding loan balances. Clynne has 10 million shares of common stock outstanding.
a. If all capital outlays are funded from retained earnings and new borrowings and if Clynne follows a residual dividend policy, what capital outlays are planned for the coming year?
b. What is Clynne's target capital structure given these assumptions?