Solution for QID #7620: The company needs to rise $3,200,000 for research and develo | StudyHelpMe

The company needs to rise $3,200,000 for research and development and is considering the following financing option: Suspend dividends for 2 years, and pay dividends of 25 cents per share from the 3rd year Increasing dividends annually by 4% per years in subsequent years Dividend in recent years have grown by 3% per year. Recent Financial information: Operating Profit:3,450,000 Interest: 200,000 Profit before taxation:3,250,000 Taxation:650,000 Profit after taxation:2,600,000 Dividends:1,600,000 Ordinary Shares (Nominal Value : 50 cents): 5,000,000 The profit tax rate paid by the company is 20% per year. Company has cost of equity of 9% per year, which is expected to remain constant.