Question Details

If the firm follows the residual dividend policy 



 .	Brooks Corp.'s projected capital budget is $2,000,000, its target capital structure is 60% debt and 40% equity, and its forecasted net income is $600,000.  If the company follows a residual dividend policy, what total dividends, if any, will it pay out?
								
	a.	$240,000						
	b.	$228,000						
	c.	$216,600						
	d.	$205,770						
	e.	$0						
								

 .	D. Paul Inc. forecasts a capital budget of $725,000.  The CFO wants to maintain a target capital structure of 45% debt and 55% equity, and it also wants to pay dividends of $500,000.  If the company follows the residual dividend policy, how much income must it earn, and what will its dividend payout ratio be?
								
		Net Income	Payout					
	a.	$898,750	55.63%					
	b.	$943,688	58.41%					
	c.	$990,872	61.34%					
	d.	$1,040,415	64.40%					
	e.	$1,092,436	67.62%					
								

 .	Banerjee Inc. wants to maintain a target capital structure with 30% debt and 70% equity.  Its forecasted net income is $550,000, and its board of directors has decreed that no new stock can be issued during the coming year.  If the firm follows the residual dividend policy, what is the maximum capital budget that is consistent with maintaining the target capital structure?
								
	a.	$673,652						
	b.	$709,107						
	c.	$746,429						
	d.	$785,714						
	e.	$825,000						
								

 .	Dentaltech Inc. projects the following data for the coming year.  If the firm follows the residual dividend policy and also maintains its target capital structure, what will its payout ratio be?
								
		EBIT	$2,000,000		Capital budget	$850,000		
		Interest rate	10%		% Debt	40%		
		Debt outstanding	$5,000,000		% Equity	60%		
		Shares outstanding	$5,000,000		Tax rate	40%		
								
	a.	37.2%						
	b.	39.1%						
	c.	41.2%						
	d.	43.3%						
	e.	45.5%						
								


 .	Mortal Inc. expects to have a capital budget of $500,000 next year.  The company wants to maintain a target capital structure with 30% debt and 70% equity, and its forecasted net income is $400,000.  If the company follows the residual dividend policy, how much in dividends, if any, will it pay?
								
	a.	$42,869						
	b.	$45,125						
	c.	$47,500						
	d.	$50,000						
	e.	$52,500						




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