8. The Chicago Outfit® is considering how to set its dividend policy. It has a capital budget of $3,000,000. The company
Posted: Sun May 08, 2022 10:03 am
8. The Chicago Outfit® is considering how to set its dividend
policy. It has a capital budget of $3,000,000. The company wants to
maintain a target capital structure that is 15% debt and 85%
equity.
a. The company forecasts that its net income this year will be
$3,500,000. If the company follows a residual dividend policy, what
will be its total dividend payment and payout ratio?
b. Suppose the firm earns $1 million less than expected this
year (i.e. net income equals $2,500,000), how much would the
dividend payment and payout ratio be in this case?
policy. It has a capital budget of $3,000,000. The company wants to
maintain a target capital structure that is 15% debt and 85%
equity.
a. The company forecasts that its net income this year will be
$3,500,000. If the company follows a residual dividend policy, what
will be its total dividend payment and payout ratio?
b. Suppose the firm earns $1 million less than expected this
year (i.e. net income equals $2,500,000), how much would the
dividend payment and payout ratio be in this case?