Problem 2 Residual Theory of D

Problem 2
Residual Theory of Dividend Policy: Eliza Doolittle, the Chief Financial Officer of East West Communication Corporation has identified $14 million worth of new capital projects which the company should invest in next year. The optimal capital structure for the company is 40 percent debt and 60 percent equity. If the expected earnings for this year is $10 million, what amount of dividend should she recommend according to residual theory?
Residual Theory of Dividend Policy: Use the same data given in problem 2, now what would be the amount of dividend that could be paid if East West’s net income for this year was
a. $16 million
b. $6million

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