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Victor Rumsfeld Inc.'s dividend policy is under review by its board. Its projected capital budget is...

Victor Rumsfeld Inc.'s dividend policy is under review by its board. Its projected capital budget is $2,000,000, its target capital structure is 60% debt and 40% equity, and its forecasted net income is $650,000. If the company follows a residual dividend policy, what total dividends, if any, will it pay out?

Select the correct answer.

a. $3,320
b. $6,640
c. $4,980
d. $1,660
e. $0
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Homework Answers

Answer #1

Projected cash budget = $ 2000000

Debt portion @ 60 % = $ 1200000

Equity portion @40% = $ 800000

Net Income = $ 650000

Under residual dividend policy , the balance amounts remaining after the expansion shall be paid as dividends

In the this scenarion equity funds required for expansion is $ 850000 ans net income is $ 650000 as there will be no balance funds available to pay dividends after the funds used for expansion , the dividends for the year will be zero

Option e has to be selected

Pls do rate, if the answer is correct and comment, if any further assistance is required.

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