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kiruha
2 months ago
9

chandler Communications'CFO has provided the following information: The company's capital budget is expected to be $5,000,000. T

he company's target capital structure is 70 percent debt and 30 percent equity. The company's net income is $4,500,000. If the company follows a residual dividend policy, what portion of its net income should it pay out as dividends this year
Business
1 answer:
harina [3.8K]2 months ago
5 0

Response: $3,000,000

Clarification:

The provided information states that the company's capital budget is projected at $5,000,000 and that its desired capital structure consists of 70% debt and 30% equity.

Equity = 30% × $5,000,000

= 30/100 × $5,000,000

= 0.3 × $5,000,000

= $1,500,000

Debt = 70% × $5,000,000

= 70/100 × $5,000,000

= 0.7 × $5,000,000

= $3,500,000

The company's net income is mentioned as $4,500,000, and with the necessity for equity calculated at $1,500,000, the amount to be distributed as dividends this year from its net income would be:

= $4,500,000 - $1,500,000

= $3,000,000

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