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Question
The Wagner Company tries to follow a pure "residual" dividend policy. Earnings and dividends last year were $100 million and $20 million respectively. Anticipated earnings for this year are $80 million. The company is financed completely with common equity. The required rate of return on retained earnings is 15 percent while the cost of new equity is 16 percent. If Wagner has $90 million of investment projects having expected returns greater than 16 percent, determine Wagner's dividend and investment policies.a. Pay out $20 million in dividends and raise $30 million externally
b. Pay no dividends and invest only in the first $80 million in projects.
c. Pay out $10 million in dividends and raise $20 million externally
d. Pay no dividends and raise $10 million externally
Answer
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Related questions
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Q:
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Q:
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