Problem: Polar LTd predicts that profits in the coming year will be $32Million. There are 8Million shares in issue and the company maintains a debt/equity ratio of 2.

Required:

Question 1: Calculate the maximum funds that will be available for investments without issuing new equity and the increase in borrowing that goes along with.

Question 2: Suppose the firm uses a residual dividend policy, and planned capital expenditures total $40Million, what will the dividend per share amount be?

Question 3: In part (b) how much borrowing will take place?

Question 4: If the company plans no capital outlays for the coming year, what is the dividend payout ration and the associated new borrowing?