Flavortech Inc. expects EBIT of $2,000,000 for the current year. The company's capital structure consists of 40 percent debt and 60 percent equity, and its marginal tax rate is 40 percent. The cost of capital is 14 percent, and the company pays a 10 percent rate on its $5,000,000 of long-term debt. One million common shares are outstanding. For the next year, the company expects to finance a large positive NPV project costing $1,200,000 and will finance it according to its target capital structure. If the company follows a residual distribution policy (with all distributions in the form of dividends) and has no other projects, what is its expected dividend payout ratio?

Answer rating: 100% (QA)

To calculate the expected dividend payout ratio for Flavortech Inc we need to determine the amount a... View the full answer