If a company follows a residual dividend policy, what will be its dividend payout ratio?
May 16, 2008 – 10:16 pmRayRay asked:
A company has a capital budget of $1,000,000, but it wants to maintain a target capital structure of 60% debt and 40% equity. The company forecasts this years net income to be $600,000. If the company follows a residual dividend policy, what will be its dividend payout ratio? Any suggestions?
Harlan
A company has a capital budget of $1,000,000, but it wants to maintain a target capital structure of 60% debt and 40% equity. The company forecasts this years net income to be $600,000. If the company follows a residual dividend policy, what will be its dividend payout ratio? Any suggestions?
Harlan
One Response to “If a company follows a residual dividend policy, what will be its dividend payout ratio?”
You need $1000K and you have $600K net income, it would seem that you can not pay dividends but need an additional $400K. You would need to issue $160K in stock and borrow $240K to maintain you 60/40 split in debt/equity ratio
By icprofit6000 on May 18, 2008