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Andrews Corporation plans a $10 million expansion. The firm wants to maintain a 45 percent debt-to-total-assets ratio in its capital structure. It also wants to maintain its past dividend policy of distributing 30 percent of last year's net income. Last year, net income was $4 million.

1) Calculate the amount of external equity needed. (I have calculated this to be 2.7 million)

2) If the company changed to a residual dividend policy, how much external equity will it need?

3) Is the company likely to change to a residual policy? Why or why not?

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Jean Keeling
Jean KeelingLv2
28 Sep 2019

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