Question

QUESTION 47 Sanchez Company has planned capital expenditures that total $2,000,000. The company wants to maintain a target capital structure that is 35% debt and 65% equity. The company forecasts that its net income this year will be $1,800,000. If the company follows a residual dividend policy, what will be its total dividend payment?

Answer 1

Answer:

total dividend payment = $500000

Explanation:

given data

planned capital expenditures = $2,000,000

debt = 35%

equity = 65%

net income = $1,800,000

solution

we get here first amount financed with equity  that is express as

amount financed with equity  = planned capital expenditures × equity  .....1

amount financed with equity  = $2,000,000 ×  65%

amount financed with equity  =  $2,000,000 ×  0.65

amount financed with equity  =  $1300000

and

now we get total dividend payment that is

total dividend payment = net income  - amount financed with equity  ..........2

total dividend payment = $1,800,000 - $1300000  

total dividend payment = $500000