Suppose that ABC Corp. subscribes to a strict residual dividend policy. Their target debt/equity ratio is 1....

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Suppose that ABC Corp.subscribes to a strict residual dividend policy. Their targetdebt/equity ratio is 1. Suppose they are willing to issue up to $3million in new equity (by issuing stock). Their net income for theperiod is $5 million.
a) What is the maximumcapital expenditure that ABC Corp. can afford, while adhering totheir target capital structure and dividend policy? $
b) What would be theamount of the dividend if they spent the maximum budget calculatedin part a) above? $

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Suppose that ABC Corp.subscribes to a strict residual dividend policy. Their targetdebt/equity ratio is 1. Suppose they are willing to issue up to $3million in new equity (by issuing stock). Their net income for theperiod is $5 million.a) What is the maximumcapital expenditure that ABC Corp. can afford, while adhering totheir target capital structure and dividend policy? $b) What would be theamount of the dividend if they spent the maximum budget calculatedin part a) above? $