Purchase Solution

Residual Dividend Policy Wildcat, Inc.

Not what you're looking for?

Ask Custom Question

Wildcat, Inc., predicts that earnings in the coming year will be $30 million. There are 8 million shares, and Wildcat maintains a debt-equity ratio of 1.5.

(a) Calculate the maximum investment funds available without issuing new equity and the increase in borrowing that goes along with it.

(b) Suppose the firm uses a residual dividend policy. Planned capital expenditures total $40 million. Based on this information, what will the dividend per share be?

(c) In part (b), how much borrowing will take place? What is the addition to retained earnings?

(d) Suppose Wildcat plans no capital outlays for the coming year. What will the dividend be under a residual policy? What will new borrowing be?

Purchase this Solution

Solution Summary

The solution calculates maximum funds available under residual dividend policy, dividend per share, retained earnings.

Solution Preview

Wildcat, Inc., predicts that earnings in the coming year will be $30 million. There are 8 million shares, and Wildcat maintains a debt-equity ratio of 1.5. (a) Calculate the maximum investment funds available without issuing new equity and the increase in borrowing that goes along with it. (b) Suppose the firm uses a residual dividend policy. Planned capital expenditures total $40 million. Based on this information, what will the dividend per share be? (c) In part (b), how much borrowing will take place? What is the ...

Purchase this Solution


Free BrainMass Quizzes
Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Motivation

This tests some key elements of major motivation theories.