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Question 4: (15 marks) The Chindimalai Transport has an optimal capital structure consisting of 40%...

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Question 4: (15 marks) The Chindimalai Transport has an optimal capital structure consisting of 40% debt and 60% equity. The marginal weighted average cost of capital is calculated to be 15%. Total earnings available to common stockholders for the coming year total $1.2 million. Investment opportunities are: Project Investment (S) IRR (%) $1,200,000 400,000 300,000 D 200,000 14 A B 17 18 16 a) According to the residual dividend theory, what should the firm's total dividend payment be? (8 marks) b) If the firm paid a total dividend of $480,000 and restricted equity financing to internally generated funds, which projects should be selected? Assume the marginal cost of capital is constant. (7 marks) [Total: 15 marks)

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