loader  Loading... Please wait...

Question(s) / Instruction(s):

8. Lenberg Lens Company believes in the dividends-as-a-residual philosophy of dividend
policy. This year’s earnings are expected to total $10 million. A very conservative
company, Lenberg is financed solely with common stock. The required rate of
return on retained earnings is 12 percent, whereas the cost of newly raised capital is
14 percent because of issuance costs.
a. If Lenberg has $6 million of investment projects having expected returns
greater than 12 percent, what total amount of dividends should Lenberg pay?
b. If Lenberg has $12 million of investment projects having expected returns
greater than 14 percent, what total amount of dividends should Lenberg pay?
c. What factors, other than its belief in the residual theory of dividends, should
Lenberg consider in setting its dividend policy in part b?

Find Similar Answers by Subject


Student Reviews

Rate and review your solution! (Please rate on a Scale of 1 - 5. Top Rating is 5.)


Expert's Answer
Download Solution:
$1.79

This solution includes:

  • Plain text
  • Cited sources when necessary
  • Attached file(s)
  • Solution Document(s)



Reach Us

408-538-8534

20-3582-4059

39-008-4233

+1-408-904-6494