Suppose that ABC Corp. subscribes to a strict residual dividend policy. Their target debt/equity ratio is...

Suppose that ABC Corp. subscribes to a strict residual dividend policy. Their target debt/equity ratio is 1. Suppose they are willing to issue up to $3 million in new equity (by issuing stock). Their net income for the period is $5 million.

a) What is the maximum capital expenditure that ABC Corp. can afford, while adhering to their target capital structure and dividend policy? $

b) What would be the amount of the dividend if they spent the maximum budget calculated in part a) above? $

Expert Solution

jeff jeffy answered 1 year ago

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