The Residual Dividend theory
The Holderall Rope and Yarn Co. has 2 million common shares outstanding. Its capital structure is two thirds equity. The firm expects earnings to 410 million next year and anticipates capital spending of $12 million on projects. Assume the projects will be funded with money raised in the debt/equity proportions of the existing capital structure. How much will the per-share dividend be next year if the firm adheres to a residual dividend policy?