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romanna [79]
3 years ago
10

David Rose Inc. forecasts a capital budget of $500,000 next year with forecasted net income of $400,000. The company wants to ma

intain a target capital structure of 30% debt and 70% equity. If the company follows the residual dividend policy, how much in dividends, if any, will it pay
Business
1 answer:
spayn [35]3 years ago
7 0

Answer:

If the company follows the residual dividend policy, it is $50,000 in dividends.

Explanation:

Dividend is calculated by using the formula:

Dividends = Net Income - Equity requirement

where, Equity requirement = Capital budget  (% Equity)

                                             = 500,000(70%)  = $350,000

∴ Dividends = 400,000 - 350,000

                    = <u>$50,000 </u>

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