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Saturn target capital structure, residual dividend policy

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Saturn Inc. expects to have net income of $20,000,000 during the next year. Saturn's target capital structure is 35 percent debt and 65 percent equity. The company's director of capital budgeting has has determined that the optimal capital budget for the coming year is $24,000,000. If Saturn follows a residual dividend policy to determine the coming year's dividend, then what is Saturn's payout ratio? Show calculations.

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Solution Summary

This solution demonstrates how to calculate the dividend payout ratio under the residual dividend policy.

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Capital Budget = $24 million
Portion of capital budget to funded using ...

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