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    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?

    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 October 10, 2019, 12:00 am ad1c9bdddf
    https://brainmass.com/business/dividends-stock-repurchase-and-policy/residual-dividend-policy-275219

    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.

    $2.19