Question: What is the formula used in the question below? Please explain step by step. Question : Timco expects net income of 47 million. They have

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

Question :

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.

Answer

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.

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