Explore BrainMass

Explore BrainMass

    Residual Dividend Policy

    Not what you're looking for? Search our solutions OR ask your own Custom question.

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

    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?

    Select the correct answer.

    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%

    © BrainMass Inc. brainmass.com March 4, 2021, 9:50 pm ad1c9bdddf

    Solution Preview

    Under Dividend Residual Policy, Dividend is calculated as follows:

    Dividend = Net Income - ( Target equity ...

    Solution Summary

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