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Calculate Income and Dividend Payout Ratio

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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 $500,000. If the company follows the residual dividend policy, how much income must it earn, and what will its dividend payout ratio be?

Net Income Payout
$898,750 55.63%
$943,688 58.41%
$990,872 61.34%
$1,040,415 64.40%
$1,092,436 67.62%.

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Solution Summary

The solution explains how to calculate income and dividend payout ratio under a residual dividend policy in 84 words with calculations included.

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The capital budget is $725,000. The equity component would be 55% a per target capital structure. The amount of equity ...

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