Question

Puckett products is planning for $2.9million in copitale expenditures next year pucketts target capitale structute consists of 65%debet and 35%ewuity if net incame next year $2.5million and pucket follws a residual distribution policy with all distribuion as dividededs what will be dividend pay out ratio

Answer 1

The dividend payout ratio under the residual distribution policy comes out to be 59.40%.

What is meant by dividends?

Dividends are the amounts allocated to the share investors of the company relating to the number of shares being held by them.

While planning for capital expenditures concerning next year, firstly, the amounts of available dividends amounting to $ 1,485,000 should be found by multiplying the target equity of 40% with the target capital of $2,900,000 and then subtracting it from net profits of $2,500,000.

Then, the dividend payout ratio of 59.40% can be determined by dividing the available dividends, that is, $1,485,000 by the net profits earned at $2,500,000.

Therefore, under the residual distribution policy, the dividend payout ratio comes out to be 59.40%.

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