Norman Inc. wishes to accept a new project which has a NPV of US$98,000. A sum...

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Norman Inc. wishes to accept a new project which has a NPV ofUS$98,000. A sum of US$10,000,000 will be needed to invest in it.The net earnings for the current year are US$1,000,000 and theaccumulated retained earnings to date are US$7,000,000. The currentamount of long term debt carried on Norman Inc.’s balance sheet isUS$5,333,333.33. Norman Inc. wishes to finance the new investmentsin line with its existing capital structure.
i. Will Norman Inc. be in a position to pay any dividendsthis year if it follows the residual dividend approach? If yes,what will be the total amount of dividend paid?
ii. What will be the debt?to?equity ratio of the newly financedproject?
iii. What would be the implications of Norman Inc.’sdividend payout decision?

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Total retained earnings 70000001000000 8000000 Long term debt 5333333 Total 13333333 Weight of long term debt 533333313333333 4000 Weight of equity 800000013333333 See Answer

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Norman Inc. wishes to accept a new project which has a NPV ofUS$98,000. A sum of US$10,000,000 will be needed to invest in it.The net earnings for the current year are US$1,000,000 and theaccumulated retained earnings to date are US$7,000,000. The currentamount of long term debt carried on Norman Inc.’s balance sheet isUS$5,333,333.33. Norman Inc. wishes to finance the new investmentsin line with its existing capital structure.i. Will Norman Inc. be in a position to pay any dividendsthis year if it follows the residual dividend approach? If yes,what will be the total amount of dividend paid?ii. What will be the debt?to?equity ratio of the newly financedproject?iii. What would be the implications of Norman Inc.’sdividend payout decision?