Halex Bhd. a manufacturer of tiles has forecasted its investment opportunities over the next five years. The company maintains a 35:65 debt to equity mix, which the management accepts to be an optimal capital structure for firms within the industry. At present the outstanding common stocks amounts to 2 million units. The total cost of each year s investment and the earnings available for that year are as follows:

Year	Cost (RM’000)	Earnings (RM’000)
1	3,000	2,000
2	3,800	3,000
3	4,500	3,250
4	4,000	3,800
5	6,500	4,300

Required:

1. Calculate dividend per share for each year assuming the firm applies the residual dividend policy.
2. Based on your results as per (a) above, discuss the implication of adopting a pure residual dividend policy.

Answer rating: 100% (QA)

Part b Residual dividend policies are adopted by companies to prioritize capital expenditures over d... View the full answer