ares are 10,

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A company expects to generate the following net income and incur the following capex in the next five years:

      Rs. Lakhs

Year

1

2

3

4

5

Net Profit

75

80

85

90

100

Capex

40

45

50

50

60

 

The total number of outstanding shares are 10,00,000 and the current dividend is Rs.4.50 per share.

 QUESTIONS : 

 Determine the dividend if the firm follows a pure residual dividend policy

  1. Determine the external financing needed if the current dividend is maintained
  2. Determine the external financing required if the company maintains a 50% dividend pay-out ratio
  3. Under which of the above is the external requirement of funds maximized?
  4. Which method of dividend payment do you advocate for this firm?
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