Capital Structure........does my ans correct?

M&M corp. has $20 million in profit for the year and establishes a capital structure policy, with 30% of all financing coming from debt and the remainder from equity, for all new projects. Expected cash needs for a new project (with positive NPV) is $15 million. Assuming the residual theory of dividends is applicable:

i) How much amount of debt is needed to finance the new project?
My Ans. 6 million
ii) How much amount of equity is needed to finance the new project?
My Ans. 14million
iii) How much amount of dividend could be paid out?
My ans. -1 million

No, u don't need all the 20 mil (which goes to RE and hence equity). you only need 15 mil.

i) 0.3*15 = 4.5
ii) 10.5
iii) The residual theory of dividends suggests that dividend payments should be viewed as residual鈥攖he amount left over after all acceptable investment opportunities have been undertaken.

So, assuming u only have that 20 mil in ur equity, and u've used $10.5 to finance the new project, u have 9.5 leftover. This is to be distributed as dividends.

the last time I saw school desk?
my answer is 1991.

waouh! long-long ago!!!