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Oxana [17]
3 years ago
14

Getler Inc.'s projected capital budget is $2,000,000, its target capital structure is 40% debt and 60% equity, and its forecaste

d net income is $1,000,000. If the company follows a residual dividend policy, how much dividends will it pay or, alternatively, how much new stock must it issue?Dividends Stock Issueda.$541,500 $171,475b.$600,000 $190,000c.$514,425 $162,901d.$570,000 $180,500e.$ 0 $200,000
Business
1 answer:
anyanavicka [17]3 years ago
4 0

Answer:

The correct answer to the following question will be Option e (0 $ 200,000).

Explanation:

Residual dividend policy should be used for businesses that fund their capital needs by wealth earned at home. Such that, companies can make investments only if all investment requirements are satisfied by something like internal resources instead of moving to something like the marketplace.

Capital Budget = $2,000,000

Capital structure will be:

Debt = 40%    

Equity = 60%

Income = $1,000,000

So let us measure the balance of our Expected Debt and Equity first:

Debt = 2,000,000 \times  40  \ percent

        = 800,000

Equity = 2,000,000\times  60 \ percent

           = 1,2000,000

As we know our income will be $1,000,000.

Then maybe we can have been using our inner income of $1,000,000 to funding everyone's capital requirement of $1,2000,000.

So,

Residual amount = 1,000,000 - 1,2000,000

                            = -200,000

This suggests that our organization has to sell upwards of $200,000 shares of assets and therefore will not be capable to afford to pay some distributions yet. So that option e would be the right answer.

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