What is the payout ratio for Plato Inc.?
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Plato Inc. expects to have a net income of $5,000,000 during the next year. Plato's target capital structure is 35% debt and 65% equity. The company's director of capital budgeting has determined that the optimal capital budget for the coming year is $6,000,000. If Plato follows a residual dividend policy to determine the coming year's dividend, then what is plato's payout ratio? Calculate earnings that must be retained to stay at the target ratio and the residual amount available for dividends and payout ratio. Calculate earnings that must be retained to stay at the target ratio and the residual amount available for dividends and payout ratio.
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Solution Summary
The solution explains how to calculate the payout ratio under the resideual dividend policy.
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The capital budget is 6,000,000
The target capital structure is 35% debt and 65% equity. The equity portion of the ...
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