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    Residual Dividend Policy Dividend and Payout Ratio

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    Fletcher Corp. has a capital budget of $1,000,000, but wants to maintain a target capital structure of 60% debt and 40% equity. The company forecasts this years net income to be $600,000. If the company does follow a residual dividend policy, what will be its dividend paid? What will be its dividend payout ratio?

    © BrainMass Inc. brainmass.com December 24, 2021, 8:38 pm ad1c9bdddf
    https://brainmass.com/business/business-math/residual-dividend-policy-dividend-and-payout-ratio-295722

    SOLUTION This solution is FREE courtesy of BrainMass!

    The amount of retained earnings required is $400,000 (.40 x $1,000,000)
    Dividend = net income - retaining earnings required
    = $600,000 - $400,000
    = $200,000.

    Dividend that will be paid is $200,000.

    Dividend Payout ratio= Dividend/Profit
    =200000/600000
    =33.33%

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    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 8:38 pm ad1c9bdddf>
    https://brainmass.com/business/business-math/residual-dividend-policy-dividend-and-payout-ratio-295722

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