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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%

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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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