1. (20 points). The company follows a residual dividend policy. The total capital budget for next...

 

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1. (20 points). The company follows a residual dividend policy. The total capital budget for next year is likely to be $10 million. The forecasted level of potential retained earnings next year is $5 million. The target of optimal capital structure is a debt ratio of 40%. Compute the amount of the dividend (or the amount of new common stock needed) and the dividend payout ratio for the given capital expenditure amount. Will the company issue new common stock? 1. (20 points). The company follows a residual dividend policy. The total capital budget for next year is likely to be $10 million. The forecasted level of potential retained earnings next year is $5 million. The target of optimal capital structure is a debt ratio of 40%. Compute the amount of the dividend (or the amount of new common stock needed) and the dividend payout ratio for the given capital expenditure amount. Will the company issue new common stock?

Answer rating: 100% (QA)

The residual dividend policy states that a company will first finance its capital budget and then di... View the full answer