Question

Puckett Products is planning for $3 million in capital expenditures next year. Puckett's target capital structure...

Puckett Products is planning for $3 million in capital expenditures next year. Puckett's target capital structure consists of 50% debt and 50% equity. If net income next year is $2 million and Puckett follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio? Round your answer to two decimal places.

  %

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Step 1: Dividend Payout Ratio in case of Residual distribution policy is calculated using the formula

DIVIDENDS = NET INCOME - (TARGET EQUITY RATIO * TOTAL CAPITAL BUDGET)

DIVIDEND PAYOUT RATIO = (DIVIDEND /NET INCOME)*100

Step2: Using the values in the question,

Total Capital = $3 million

Target Capital structure = 50% debt ; 50% equity

Net Income next year = $2 million

Step 3: Dividend calculation

Dividend = 2 - (0.5 * 3)

Dividend = $0.5 million

Step 4: Dividend Payout Ratio = (0.5/2)*100

Dividend Payout Ratio = 0.25 or 25%

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
Puckett Products is planning for $1.7 million in capital expenditures next year. Puckett's target capital structure...
Puckett Products is planning for $1.7 million in capital expenditures next year. Puckett's target capital structure consists of 65% debt and 35% equity. If net income next year is $1.4 million and Puckett follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio? Round your answer to two decimal places.
Express Industry’s expected net income for next year is $1.6 million. Its target, and current, capital...
Express Industry’s expected net income for next year is $1.6 million. Its target, and current, capital structure is 30 percent debt and 70 percent common equity. The director of capital budgeting has determined that the optimal capital budget for next year is $2 million. Suppose Express uses the residual dividend policy to determine next year’s dividend. What is the expected dividend payout ratio? Can we use the residual dividend policy to set dividends on an annual basis? Explain why.
Express Industry’s expected net income for next year is $1.6 million. Its target, and current, capital...
Express Industry’s expected net income for next year is $1.6 million. Its target, and current, capital structure is 30 percent debt and 70 percent common equity. The director of capital budgeting has determined that the optimal capital budget for next years is $2 million. Suppose Express uses the residual dividend policy to determine next year’s dividend. What is the expected dividend payout ratio? Can we use the residual dividend policy to set dividends on an annual basis? Explain why.
RESIDUAL DIVIDEND MODEL Axel Telecommunications has a target capital structure that consists of 35% debt and...
RESIDUAL DIVIDEND MODEL Axel Telecommunications has a target capital structure that consists of 35% debt and 65% equity. The company anticipates that its capital budget for the upcoming year will be $1,000,000. If Axel reports net income of $900,000 and it follows a residual dividend payout policy, what will be its dividend payout ratio? Round your answer to two decimal places. %
A company expects to have net income of $3,100,000 during the next year. Its target capital...
A company expects to have net income of $3,100,000 during the next year. Its target capital structure is 30% debt and 70% equity. The company has determined that the optimal capital budget for the coming year is $3,000,000. If Davis follows a residual distribution policy (with all distributions in the form of dividends) to determine the coming year’s dividend, then what is Davis's dividend payout ratio? 38.2% 51.6% 32.3% 19.2% A company has just implemented a 1-for-10 reverse stock split....
Kendra Brown is analyzing the capital requirements for Reynold Corporation for next year. Kendra forecasts that...
Kendra Brown is analyzing the capital requirements for Reynold Corporation for next year. Kendra forecasts that Reynold will need $15 million to fund all its positive NPV projects and her job is to determine how to raise the money. Reynold’s net income is $11 million, and it has paid a $2 dividend per share (DPS) for the past several years (1 million of shares of common stock are outstanding). Its shareholders expect the dividend to remain constant for the next...
1. A company expects to have net income of $3,100,000 during the next year. Its target...
1. A company expects to have net income of $3,100,000 during the next year. Its target capital structure is 30% debt and 70% equity. The company has determined that the optimal capital budget for the coming year is $3,000,000. If Davis follows a residual distribution policy (with all distributions in the form of dividends) to determine the coming year’s dividend, then what is Davis's dividend payout ratio? A. 3.82% B. 51.6% C. 32.3% D. 19.2% 2. A stock was trading...
A firm's/company projected capital budget is $3,000,000, its target capital structure is 50% debt and 50%...
A firm's/company projected capital budget is $3,000,000, its target capital structure is 50% debt and 50% equity, and its forecasted net income is $1,500,000. If the company follows a residual dividend policy, how much dividends will it pay or, alternatively, how much new stock must it issue?
The projected capital budget of Kandell Corporation is $1,000,000, its target capital structure is 60% debt...
The projected capital budget of Kandell Corporation is $1,000,000, its target capital structure is 60% debt and 40% equity, and its forecasted net income is $550,000. If the company follows a residual dividend policy, what total dividends, if any, will it pay out?
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT