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(Constant dollar dividend payout policy) Parker Prints is in negotiation with two
of its largest customers to increase the firms sales dramatically. The increase will require that
Parker expand its production facilities at a cost of $20 million. Parker expects to pay out $8
million in dividends to its shareholders next year. Parker maintains a 40 percent debt in its capital
structure.
a. If Parker earns $18 million next year, how much common stock will the firm need to sell
in order to maintain its target capital structure?
b. If Parker wants to avoid selling any new stock, how much can the firm spend on new
capital expenditures?
