10. The equity portion of capital outlays is the retained earnings.

Subtracting
dividends from net income,
we get:
Equity portion of capital outlays = $,!"" # $%" = $&!"
Since the debt'equity ratio is .%", we can find the new borrowings for the
company by multiplying the equity investment by the debt'equity ratio,
so:(ew borrowings = .%")$&!"* = $+&, -nd the total capital outlay will be
the sum of the new equity and the new debt, which is:
Total capital outlays = $&!" . +&, =$,!/,
11. a. The payout ratio is the dividend per share divided by the earnings per
share, so:
0ayout ratio = $".%"1$&
0ayout ratio = .$2 or .$23
b. 4nder a residual dividend policy, the additions to retained earnings,
which is the equity portion of the planned capital outlays, is the retained
earnings per share times the number of shares outstanding, so:
Equity portion of capital outlays = &5 shares )$& # .%"* = $$2.$5
This means the total investment outlay will be:
Total investment outlay = $$2.$5 . %5
Total investment outlay = $,.$5
The debt'equity ratio is the new borrowing divided by the new equity, so:
61E ratio = $%51$$2.$5 = .$$&
12. a. Since the company has a debt'equity ratio of 2, they can raise $2 in
debt for every $ of equity.
The ma7imum capital outlay with no outside equity financing is:
5a7imum capital outlay = $%",""" . 2)$%","""* = $&!",""".
b. 8f planned capital spending is $&,",""", then no dividend will be paid
and new equity will be
issued since this e7ceeds the amount calculated in a.
c. (o, they do not maintain a constant dividend payout because, with the
strict residual policy, the
dividend will depend on the investment opportunities and earnings. -s these
two things vary,
the dividend payout will also vary.