etain only sufficient earnings.Although Broadhead, the new Chairman, had commenced an aggressive capital expenditure program of $6.6Billion designed to meet projected demand into the next decade, the program will be funded by issuing long-term debt and common stock mainly, while only $1B is going to be funded by internal profits. And the program will spread over five years. Therefore, the internal resources of FPL are more than enough to fund this program.Broadhead also decided to focus on the core business and sell some non-utility businesses. If there is a gain on the sale of non-core businesses, the profit may be boost and FPL can develop its business without increasing the ratio of retained earnings substantially. Even there is a loss on the sale, it will still bring cash-inflow to the company and help the liquidity.In the aspect of expenditure, Broadhead had reduced a substantial number of headcount between 1990 and 1993. There might bring some negative impacts on the profit in short term, like incurring a huge sum of redundancy expenses. However, the full positive effect of cost-saving on the profit shall reveal in the coming years. But one thing we concerned is there is an increasing number of maturing debt in the coming few years (Exhibit 6), the company may need money to repay the debt. Because of the recent rising interest rate environment and the increase of interest spread of the long-term loan of the company, FPL is unlikely to re-finance the existing loan and has to repay them. Even FPL decided to have re-financing, it has to accept an unfavorable term and have the higher interest expenses.Another thing we have to notice is that FPL's retained earnings has been decreasing by 50.3% accumulatively from 1989 to 1993. The ratio of retained earnings to total capital has also been falling from 22.5% in 1989 to 9.9% in 1993. Q.3 Consider FPL's shareholder base. How might this influence the dividend decision.The Shareholder base ...
