How much dividend can the firm pay to the stockholders

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Reference no: EM132512740

Lime Ade Corporation, a large soft drink manufacturing firm, is faced with a decision of how much to pay out as dividends to its stock holders.

It expects to have a net income of $1000 million (after depreciation of $500 million), and it has the following projects:

Project Initial investment Beta IRR (to equity investors)

A $500 million 2.0 21%

B $600 million 1.5 20%

C $500 million 1.0 12%

The firm's beta is 1.5 and the current risk free rate is 6%

Question 1: The firm plans to finance net capital expenditures (Capex- Depreciation) and working capital with 20% debt. The firm also has current revenues of $5000, which it expects to grow at 8%. Working capital will be maintained at 25% of revenues. How much dividend can the firm pay to its stockholders?

Reference no: EM132512740

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