Question Details

The company wants to maintain a target capital structure 


 .	Which of the following statements is CORRECT?

a.	If a firm follows the residual dividend policy, then a sudden increase in the number of profitable projects is likely to reduce the firm- dividend payout.
b.	The clientele effect can explain why so many firms change their dividend policies so often.
c.	One advantage of adopting the residual dividend policy is that this policy makes it easier for corporations to develop a specific and well-identified dividend clientele.
d.	New-stock dividend reinvestment plans are similar to stock dividends because they both increase the number of shares outstanding but don’t change the firm- total amount of book equity.
e.	Investors who receive stock dividends must pay taxes on the value of the new shares in the year the stock dividends are received. 

Note to Professors:  Most of these problems may be changed algorithmically.  Those that cannot are labeled nonalgorithmic.  With some combinations of variables, the residual policy may result in zero dividends and a zero payout ratio.  When this possibility exists, we so indicate.  With other similar problems, we set the algorithmic constraints so that there will always be a positive dividend.

Easy:
 .	Brammer Corp.'s projected capital budget is $1,000,000, its target capital structure is 60% debt and 40% equity, and its forecasted net income is $550,000.  If the company follows a residual dividend policy, what total dividends, if any, will it pay out?
								
	a.	$122,176						
	b.	$128,606						
	c.	$135,375						
	d.	$142,500						
	e.	$150,000						
						
 .	Blease Inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of 60% debt and 40% equity.  The company forecasts a net income of $475,000.  If it follows the residual dividend policy, what is its forecasted dividend payout ratio?
								
	a.	40.61%						
	b.	42.75%						
	c.	45.00%						
	d.	47.37%						
	e.	49.74%						
 .	P&D Co. has a capital budget of $1,000,000.  The company wants to maintain a target capital structure which is 30% debt and 70% equity.  The company forecasts that its net income this year will be $800,000.  If the company follows a residual dividend policy, what will be its total dividend payment?
								
	a.	$100,000						
	b.	$200,000						
	c.	$300,000						
	d.	$400,000						
	e.	$500,000						
								

 .	Pate & Co. has a capital budget of $3,000,000.  The company wants to maintain a target capital structure that is 15% debt and 85% equity.  The company forecasts that its net income this year will be $3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment?
								
	a.	$205,000						
	b.	$500,000						
	c.	$950,000						
	d.	$2,550,000						
	e.	$3,050,000						




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