What is the formula used in the question below? Please explain step by step.

Question:

Timco uses a payout ratio of 50%. What would the dividend be for the expected net income from example 8?

Answer:

.5*47=23.5.

Example 8:

Timco expects net income of 47 million. They have identified 60 million in positive NPV investments. They use half debt and half equity in their capital structure. Find the residual dividend.

To purchase the projects, Timco needs 30 million in retained earnings. The rest will come from new debt. 47-30=17 million leftover for the residual dividend.