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    Payout Ratio & Cost of Retained Earnings

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    Strategic Systems expects to have a net income of $650,000 during the next year. Its target and current capital structure is 40% debt and 60% common equity. The Director of Capital Budgeting has determined that the optimal capital budget for next year is $1.0 million. If strategic uses the residual dividend model to determine next yearâ??s dividend payout, what is the expected payout ratio?

    M Corporationâ??s common stock is currently selling for $50 per share. The current dividend is $2 per share. If dividends are expected to grow at 6% per year and if the flotation costs are 10%, then what is the firmâ??s cost of retained earnings?

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    Solution Preview

    Strategic Systems expects to have a net income of $650,000 during the next year. Its target and current capital structure is 40% debt and 60% common equity. The Director of Capital Budgeting has determined that the optimal capital budget for next ...

    Solution Summary

    The response helps in computation of Payout Ratio & Cost of Retained Earnings.

    $2.19