Brooks Corp.\'s projected capital budget is $2,000,000, its target capital struc
ID: 2704557 • Letter: B
Question
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? Answer$240,000
$228,000
$216,600
$205,770
$0 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? 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? $240,000 $228,000 $216,600 $205,770 $0
$240,000
$228,000
$216,600
$205,770
$0
Explanation / Answer
Given Target Capital Structure is 60% Debt and 40% Equity.
Hence Equity portion of the total Capital Budget = $20,00,000 x 40% = $800000
Given, Forecasted Net Income = $600000.
In Residual Policy method,the Equity Sources of Fund are first procured internally (From Net Income/Retained earnings) and if still balance exists ,then that is paid as residual dividend.
Here in this case as there is no Residual Amount available ($600000 < $800000),
Hence, residual dividend payable = $0.
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