Reference no: EM131468676

In answering the below question, I would like the answers to come with details surrounding the equations and how they were arrived at (where each number/variable in the equation is determined), why it is that way, not just a copy & paste answer. This way I can learn and understand. Thank you.

QUESTION:

Beer Company A had total earnings last year of $5,000,000, but expects total earnings to drop to $4,750,000 this year due to a slump in the beer industry. There are currently 1,000,000 shares of common stock outstanding. The company has $4,000,000 worth of investments to undertake this year. The company finances 40 percent of its investments with debt and 60 percent with equity capital. The company paid $3.00 per share in dividends last year.

(A) If the company follows a pure residual dividend policy, how large a dividend will each shareholder receive this year?

(B) If the company maintains a constant dividend payout ratio each year, how large a dividend will each shareholder receive this year?

(C) If the company follows a constant dollar dividend policy, how large a dividend will each shareholder receive this year?