Question Details

If the company follows the residual dividend policy, how much in dividends, if any, will it pay 



1.The capital budget forecast for the Santano Company is  $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%
		

2.United Builders wants to maintain a target capital structure with 30% debt and 70% equity.  Its forecasted net income is $550,000, and because of market conditions, the company will not issue any new stock 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	
		

3.Silvana 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
	Interest rate	10%
	Debt outstanding	$5,000,000
	Shares outstanding	$5,000,000
		
a.	37.2%	
b.	39.1%	
c.	41.2%	
d.	43.3%	
e.	45.5%	
		

4. David Rose Inc. forecasts a capital budget of $500,000 next year with forecasted net income of $400,000. The company wants to maintain a target capital structure of 30% debt and 70% equity.  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	
		

5. In recent years Constable Inc. has suffered losses, and its stock currently sells for only $0.50 per share.  Management wants to use a reverse split to get the price up to a more "reasonable" level, which it thinks is $25 per share.  How many of the old shares must be given up for one new share to achieve the $25 price, assuming this transaction has no effect on total market value?
		
a.	47.50	
b.	49.88	
c.	50.00	
d.	52.50	
e.	55.13	



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