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10 March, 07:24

Altamonte Telecommunications has a target capital structure that consists of 55% debt and 45% equity. The company anticipates that its capital budget for the upcoming year will be $1,000,000. If Altamonte reports net income of $1,100,000 and it follows a residual dividend payout policy, what will be its dividend payout ratio? Round your answer to two decimal places.

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  1. 10 March, 07:26
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    59.09%

    Explanation:

    Dividend paid:

    = Net income - (Weight of equity * Capital budget)

    = 1,100,000 - (0.45 * 1,000,000)

    = $650,000

    Hence,

    Dividend payout ratio = Dividend : net income

    = $650,000 : 1,100,000

    = 59.09% (Approx). (or 0.5909 approx).

    Therefore, the dividend payout ratio is 59.09%.
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