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Residual Distribution Model

Plucky Products is planning for $3.3 million in capital expenditures next year. Plucky's target capital structure consists of 35% debt and 65% equity. If net income next year is $2.4 million and Plucky follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio? Round your answer to two decimal places.

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Beverley Smith
Beverley SmithLv2
29 Sep 2019

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Residual Distribution Policy:

Puck’s Company has a capital budget of $1.1 Million. Puck’s company desires to maintain a target capital structure which is 35% debt and 65% equity. Puck’s company forecasts that its net income this year will be $800,000. If Puck’s company follows a residual distribution model and pays all distributions as dividends, what will be its payout ratio? Round your answer to two decimal places.

Axel Telecommunications has a target capital structure that consists of 60% debt and 40% equity. The company anticipates that its capital budget for the upcoming year will be $3,000,000. If Axel reports net income of $2,700,000 and it follows a residual dividend payout policy, what will be its dividend payout ratio? Round your answer to two decimal places.

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Dividend Payout

The AA Corporation expects next year's net income to be $20 million. The firm's debt ratio is currently 50%. AA has $10 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should AA's dividend payout ratio be next year? Round your answer to two decimal places.

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