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Residual dividends: payout policy

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Company A has a target capital structure that consists of 70 percent debt and 30 percent equity. The company anticipates that its capital budget for the upcoming year will be 3,000,000. If Company A reports net income of 2,000,000 and it follows a residual dividend payout policy, what will be its dividend payout ratio? Please show calculations.

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Solution Summary

The solution explains how to calculate the dividend payout under a residual dividend policy

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In a residual dividend policy, we subtract the retained earnings required for investment from the net income and the remaining amount is paid as ...

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