Your company has decided that its capital budget during the coming year will be $20 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) are projected to be $34.667 million for the year. The company has $200 million of assets; its average interest rate on outstanding debt is 10 percent; and its tax rate is 40 percent. If the company follows the residual dividend policy and maintains the same capital structure, what will its dividend payout ratio be?© BrainMass Inc. brainmass.com October 1, 2020, 6:12 pm ad1c9bdddf
Capital budget = 20
EBIT = 34.667
Asset = 200
Kd = 10%
t = 40%
The firm's current debt = 40% * 200 = 80
So the interest ...
With formulas and calculations, the solution is worked through to show the dividend payout ratio percentage.