Purchase Solution

# Residual Dividend Policy

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D. Paul Inc. forecasts a capital budget of \$725,000. The CFO wants to maintain a target capital structure of 45% debt and 55% equity, and it also wants to pay dividends of \$200,000. If the company follows the residual dividend policy, how much income must it earn, and what will its dividend payout ratio be?

NI = \$599,740
Payout = 33.49%

NI = \$599,410
Payout = 33.46%

NI = \$600,070
Payout = 33.52%

NI = \$599,080
Payout = 33.43%

NI = \$598,750
Payout = 33.40%

##### Solution Summary

The solution calculates income level and dividend payout ratio if a company follows residual dividend policy along with formula.

##### Solution Preview

Under Dividend Residual Policy, Dividend is calculated as follows:

Dividend = Net Income - ( Target equity ...

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