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Residual Dividend Policy: Maximum Capital Budget

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2. Banerjee Inc. wants to maintain a target capital structure with 30% debt and 70% equity. Its forecasted net income is $550,000, and its board of directors has decreed that no new stock can be issued during the coming year. If the firm follows the residual dividend policy, what is the maximum capital budget that is consistent with maintaining the target capital structure?

$673, 652

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The solution explains the mutiple choice question in relation to residual dividend policy

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The target capital structure has 30% debt and 70% equity. If no new ...

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