Using the residual dividend payment model, calculate the amount that Roadtrip, Inc. would be distributing to its shareholders: (a) Capital budget = $1,000,000; (b) Target capital structure = 35% debt and 65% equity; (c) Expected Net Income of $750,000.

Select one:

a. Payout ratio of 65%

b. Payout ratio of 35%

c. They will distribute among their shareholders $487,500

d. They will distribute among their shareholders $650,000

We can conclude that the greater the proportion of direct costs within the capital structure of a company, the greater its degree of operational leverage. Select one:

a. TRUE

b. False

The financial risk of a company can be defined as the additional risk concentrated in the common shareholders of the firm when financial leverage is used. Select one:

a. TRUE

b. False