Sweetums Inc, a confectioner best known for its mint ogre balls, uses

Sweetums Inc, a confectioner best known for its mint ogre balls, uses the residual dividend model to set its dividends. Selected financial information for Sweetums Inc is provided in the table below.

Given the investment plan summarized in the table, how much new debt will it have to take on in order to maintain its target capital structure?

Selected Financial Information
Sweetums Inc
Net income $90 million
Equity capital structure weight 0.60
Investments $100 million
Dividends $0.30 per share

A) $30 million
B) $40 million
C) $60 million
D) $90 million
E) $100 million

ANSWER

B