Torrence Inc. has the following data. If it uses the residual dividend model, how much total dividends, if any, will it pay out?

Capital budget $1,025,000

% Debt 60%

Net Income (NI) $665,000

a. $211,650

b. $234,600

c. $193,800

d. $255,000

e. $316,200

Answer: d. $ 255,000

Explanation:

Residual dividends are those that are paid when the company's budget is already covered and taken at the end of the undistributed profit.

So if my budget is $ 1,025,000 less 60% of the debt, that is:

$ 1,025,000 * 60% = $ 615,000

$ 615000 - $ 410000 = $ 255,000

This would be the residual dividend that should be paid.