Residual Dividend Policy
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The F. Nutt Corporation follows a strict residual dividend policy. Its debt-equity ratio is 3.
a. If earnings for the year are $180,000, what is the maximum amount of capital spending possible with no new equity?
b. If planned investment outlays for the coming year are $760,000, will F. Nutt pay a dividend? If so, how much?
c. Does F.Nutt maintain a constant dividend payout? Why or Why not?
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a. The debt to equity ratio is 3. This implies that 3 time equity can be taken as debt. If no new equity is taken, the total equity available would be the retained earnings of $180,000. The amount of debt that can be taken with this equity is 180,000X3 = ...
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