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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?

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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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