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10 March, 04:08

chandler Communications'CFO has provided the following information: The company's capital budget is expected to be $5,000,000. The company's target capital structure is 70 percent debt and 30 percent equity. The company's net income is $4,500,000. If the company follows a residual dividend policy, what portion of its net income should it pay out as dividends this year

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  1. 10 March, 04:16
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    Answer: $3,000,000

    Explanation:

    From the question, we are informed that a company's capital budget is expected to be $5,000,000 and that the company's target capital structure is 70 percent debt and 30 percent equity.

    Equity = 30% * $5,000,000

    = 30/100 * $5,000,000

    = 0.3 * $5,000,000

    = $1,500,000

    Debt = 70% * $5,000,000

    = 70/100 * $5,000,000

    = 0.7 * $5,000,000

    = $3,500,000

    We are further told that the company's net income is $4,500,000 and since we be calculated the equity that will be needed to finance the capital budget as $1,500,000. Therefore, portion of its net income should it pay out as dividends this year will be:

    = $4,500,000 - $1,500,000

    = $3,000,000
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Home » Business » chandler Communications'CFO has provided the following information: The company's capital budget is expected to be $5,000,000. The company's target capital structure is 70 percent debt and 30 percent equity. The company's net income is $4,500,000.
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