Question: AR Tech Inc. projects the following data for the coming year. EBIT $2,000,000 Capital budget $850,000 Interest rate 10% % Debt 40% Debt outstanding $5,000,000

AR Tech Inc. projects the following data for the coming year.

EBIT $2,000,000 Capital budget $850,000

Interest rate 10% % Debt 40%

Debt outstanding $5,000,000 % Equity 60%

Shares outstanding 5,000,000 Tax rate 30%

Assume the company follows the residual dividend policy and also maintains its target capital structure.

1-Determine net income for AR Tech

2-Determine how much equity is needed for the capital budget.

3-What is AR Tech's payout ratio?

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