Question

Residual dividend policy   As president of​ Young's of​ California, a large clothing​ chain, you have just...

Residual dividend policy   As president of​ Young's of​ California, a large clothing​ chain, you have just received a letter from a major stockholder. The stockholder asks about the​ company's dividend policy. In​ fact, the stockholder has asked you to estimate the amount of the dividend that you are likely to pay next year. You have not yet collected all the information about the expected dividend​ payment, but you do know the​ following:

​(1) The company follows a residual dividend policy.

​(2) The total capital budget for next year is likely to be one of three​ amounts, depending on the results of capital budgeting studies that are currently under way. The capital expenditure amounts are $2.1 million, 3.1 million, and 4.1 million.

​(3) The forecasted level of potential retained earnings next year is 2.1 million.

​(4) The target or optimal capital structure is a debt ratio of 40​%.

You have decided to respond by sending the stockholder the best information available to you.

a.  Compute the amount of the dividend​ (or the amount of new common stock​ needed) and the dividend payout ratio for each of the three capital expenditure amounts.

b.  ​Compare, contrast, and discuss the amount of dividends​ (calculated in part a​)associated with each of the three capital expenditure amounts.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

­SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
As president of Young’s of California, a large clothing chain, you have just received a letter...
As president of Young’s of California, a large clothing chain, you have just received a letter from a major stockholder. The stockholder asks about the company’s dividend policy. In fact, the stockholder has asked you to estimate the amount of the dividend that you are likely to pay next year. You have not yet collected all the information about the expected dividend payment, but you do know the following: (1) The company follows a residual dividend policy (2) The total...
​(Residual dividend policy​) ​FarmCo, Inc. follows a policy of paying out cash dividends equal to the...
​(Residual dividend policy​) ​FarmCo, Inc. follows a policy of paying out cash dividends equal to the residual amount that remains after funding 40 percent of its planned capital expenditures. The firm tries to maintain a 40 percent debt and 60 percent equity capital structure and does not plan on issuing more stock in the coming year.​ FarmCo's CFO has estimated that the firm will earn $17 million in the current year. a. If the firm maintains its target financing mix...
13. A firm follows a residual dividend policy and maintains a constant debt-to-equity ratio. There are...
13. A firm follows a residual dividend policy and maintains a constant debt-to-equity ratio. There are 9,250 common shares outstanding at a market price of $12 per share, as well as 366 bonds outstanding and selling at a par value of $1,000. The projected spending on capital projects is $167,110 for next year. Net income for next year is estimated to be $64,950. What is the projected dividend amount per share for next year?
ABC Co follows a residual dividend policy and maintains a constant debt-equity ratio. There are 15,000...
ABC Co follows a residual dividend policy and maintains a constant debt-equity ratio. There are 15,000 shares of stock outstanding at a market price of $12 a share. There are 300 bonds outstanding, which are selling at $1,200. The projected spending on capital projects is $210,000 for next year. Earnings for next year are estimated at $100,000. What is the projected dividend amount per share? a $6.67 b $2.00 c $2.50 d $222
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year....
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $6 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows: Project A: Cost of capital = 17%; IRR = 16% Project B: Cost of capital = 12%; IRR = 10% Project C: Cost of...
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year....
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $4 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows: Project A: Cost of capital = 15%; IRR = 16% Project B: Cost of capital = 13%; IRR = 11% Project C: Cost of...
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year....
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $3 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows: Project A: Cost of capital = 18%; IRR = 21% Project B: Cost of capital = 14%; IRR = 16% Project C: Cost of...
Problem 14-09 Residual Distribution Policy Harris Company must set its investment and dividend policies for the...
Problem 14-09 Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $5 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows: Project A: Cost of capital = 18%; IRR = 20% Project B: Cost of capital = 12%; IRR = 16% Project C:...
Question 2.1 (8 Marks) Roads Ltd is a construction company that builds roads and related civil...
Question 2.1 Roads Ltd is a construction company that builds roads and related civil projects. The company recently faced increased calls from investors to pay dividends due to the perceived lack of new profitable projects in a low growth economy. The company has, in spite of weak business sentiment, maintained a stable profit margin. At a recent meeting, the board resolved to adopt a residual approach to dividend payments. You have been tasked with recommending the dividend that should be...
In your discussions with the CFO you have talked about the impact of a dividend on...
In your discussions with the CFO you have talked about the impact of a dividend on your company’s market price and financial statements. He has asked that you and your team evaluate the impact of issuing a dividend. Use the income statement and balance sheet provided to make recommendation for the amount of dividend (if any). How are retained earnings impacted and what does this mean for the organization? Compute the Internal Growth Rate and Sustainable Growth Rate using current...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT