TeamX Corporation is reviewing its capital budget for the upcoming year

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TeamX Corporation is reviewing its capital budget for the upcoming year. It has paid a $3.00 dividend per share (DPS) for the past several years, and its shareholders expect the dividend to remain constant for the next several years. The company’s target capital structure is 60 percent equity and 40 percent debt; it has 1,000,000 shares of common equity outstanding; and its net income is $8 million. The company forecasts that it would require $10 million to fund all of its profitable (that is, positive NPV) projects for the upcoming year.

a) If Brown follows the residual dividend model, what will be the company’s dividend per share?

b) Suppose that Brown’s management wants to maintain the $3.00 DPS. In addition, the company wants to maintain its $10 million capital budget. What is the minimum dollar amount of new common stock that the company would have to issue in order to meet its objectives?