Wolverine Corporation plans to pay a $3 dividend per share on each of its 300,00

Question

Wolverine Corporation plans to pay a $3 dividend per share on each of its 300,000 shares next year. Wolverine anticipates earnings of $6.25 per share over the year. If the company has a capital budget requiring an investment of $4 million over the year and it desires to maintain its present debt to total assets (debt ratio) of 0.40, how much external equity must it raise? Assume that Wolverine's capital structure includes only common equity and debt, and that debt and equity will be the only sources of funds to finance capital projects over the year. **Must show how you arrived at the answer**

Explanation / Answer

Earning Per Share 6.25 Less: Dividend Paid 3 Retained Earning 3.25 No. of Shares 300000 Total Retained Earning (300000*3.25) 975000 Total Investment required 4000000 Debt Share Required 0.40*4000000 1600000 Equity Share Required 0.60*4000000 2400000 Less: Retained Earning 975000 External equity to be raised 1425000

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.