1) Blake Systems follows a strict residual dividend policy. The company estimates that its capital expenditures this year will be $40 million, its net income will be $30 million, and its target capital structure is 60 percent equity and 40 percent debt. What will be the company's dividend payout ratio?
2) Jones corp forecasts that its earnings per share will be $3.00 this year. The company has 500 million shares of stock outstanding. Jones corp estimates that its capital budget for the upcoming year will be $800 million, and it is committed to funding the entire capital budget. The company is also committed to maintaining its dividend of $2.00 per share, and it wants to avoid issuing new common stock. The company's capital structure consists of debt and common stock. Given the above constraints, what portion of the $800 million capital budget will be funded with debt?
1) Capital expenditures = $40 million
Target capital structure is 60 percent equity and 40 percent debt
Amount of equity capital required = 40*60%=24 million
Capital expenditures are encompassed.