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Dividend Questions

Please help with the following questions

Plato Inc. expects net income of $5,000,000 next year. Plato's target capital structure is 35% debt and 65% equity. Management estimates that the optimal capital budget for the coming year is $6,000,000. If Plato follows a residual dividend policy, what is its payout ratio?

a. 38%

b. 42%

c. 58%

d. 33%

e. 22%

Simon Utility expects net income of $5 billion this year. The company has an estimated capital budget of $4 billion, and its capital structure is 65% common equity and 35% debt. If the company follows a strict residual dividend policy, what is the company?s expected dividend payout ratio?

a. 0.00%

b. 35.00%

c. 48.00%

d. 65.00%

e. 100.00%

A firm has current after tax earnings of $1,000,000 and has declared a cash dividend of $400,000. The firm's dividend payout ratio is

a 2.5 percent.
b 2.0 percent.
c 4.0 percent.
d 40 percent.

Solution Preview

1. In residual policy, first all equity needs are met and the remaining amount is paid as dividend. The capital budget is $6,000,000 ...

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The solution explains some multiple choice questions relating to dividends