The Clydesdale Corporation has an optimal capital structure consisting of 70 percent debt and 30 percent equity.The marginal cost of capital is calculated to be 14.75 percent.Total earnings available to common stockholders for the coming year total $1,200,000.Investment opportunities are:
a.According to the residual dividend theory,what should the firm's total dividend payment be?
b.If the firm paid a total dividend of $675,000,and restricted equity financing to internally generated funds,which projects should be selected?
Assume the marginal cost of capital is constant.
Definitions:
Methane Gas
A colorless, odorless flammable gas that is the simplest alkane, consisting of one carbon atom and four hydrogen atoms, widely used as a fuel.
Complete Combustion
A chemical reaction in which a compound reacts with an oxygen-rich environment to produce a complete oxidation, releasing maximum energy.
Ethanol
A volatile, flammable, colorless liquid, commonly known as alcohol, used in beverages and as a solvent or fuel.
Complete Combustion
A chemical process in which a compound, usually a hydrocarbon, reacts fully with an abundant supply of oxygen to produce carbon dioxide, water, and energy.
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