Question

Dividend Payout The Wei Corporation expects next year's net income to be $15 million. The firm's...

Dividend Payout

The Wei Corporation expects next year's net income to be $15 million. The firm's debt ratio is currently 45%. Wei has $10 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei's dividend payout ratio be next year? Round your answer to two decimal places.

%

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

A residual dividend is a dividend policy company management uses to fund capital expenditures with available earnings before paying dividends to shareholders.

Expected Net Income next year = $15mil

Company sees an opportunity of $10 mil. In order to maintain the same capital structure, this would be 45% funded by debt and remaining from equity.

=> $4.5 mil would be coming from debt and $5.5 mil from equity.

$5.5 mil from equity would be used from net income, and the remaining amount would be paid as dividends. So, dividends would be $9.5 mil.

Dividend Payout ratio = Dividends payment/Net Income = 9.5/15 = 63.33%

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
ABC Corporation expects to pay a dividend of $2 per share next year, and the dividend...
ABC Corporation expects to pay a dividend of $2 per share next year, and the dividend payout ratio is 80 percent. Dividends are expected to grow at a constant rate of 8 percent forever.Suppose the company's equity beta is 1.21, the market risk premius is 9%, and the risk free rate is 5%. Calculate the present value of growth opportunities.
ABC Corporation expects to pay a dividend of $2 per share next year, and the dividend...
ABC Corporation expects to pay a dividend of $2 per share next year, and the dividend payout ratio is 80 percent. Dividends are expected to grow at a constant rate of 8 percent forever.Suppose the company's equity beta is 1.21, the market risk premius is 9%, and the risk free rate is 5%. Calculate the present value of growth opportunities.
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.
Alternative: Dividend Policies: In 2013, Keenan Company paid dividends totaling $3,600,000 on net income of $10.8...
Alternative: Dividend Policies: In 2013, Keenan Company paid dividends totaling $3,600,000 on net income of $10.8 million. Note that 2013 was a normal year and that for the past 10 years, earnings have grown at 10%. However in 2014, earnings are expected to jump to $14.4 million and the firm expects to have profitable investment opportunities of $8.4 million. It is predicted that Keenan will not be able to maintain the 2014 level of earnings growth because of the high...
Kendra Brown is analyzing the capital requirements for Reynolds Corporation for next year. Kendra forecasts that...
Kendra Brown is analyzing the capital requirements for Reynolds Corporation for next year. Kendra forecasts that Reynolds will need $7 million to fund all of its positive-NPV projects, and her job is to determine how to raise the money. Reynolds's net income is $7 million, and it has paid a $3.00 dividend per share (DPS) for the past several years (1.5 million shares of common stock are outstanding); its shareholders expect the dividend to remain constant for the next several...
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....
16. Hootman Inc. expects $1.0 million of net income available to shareholders for next year. The...
16. Hootman Inc. expects $1.0 million of net income available to shareholders for next year. The company's optimal capital structure is 40% debt and 60% equity. The capital needs for next year are $1.5 million. If the firm uses a residual dividend policy, what will be the firm's dividend payout ratio for next year? a. 10%                                               b. 40% c. 70%                                          d. 90% 17. Bill plans to open a self serve grooming center in a storefront. The grooming equipment...
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...
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT