Ting Technology has a capital budget of $850,000, it wants to maintain a target capital structure of 35% debt and 65% equity, and it also wants to pay a dividend of $400,000. If the company follows a residual dividend policy, how much net income must it earn to meet its capital budgeting requirements and pay the dividend, all while keeping its capital structure in balance?

Question

Quizplus · Accepted Answer

To maintain a 65% equity structure, Ting Technology needs $552,500 in equity for the capital budget ($850,000 * 65%). Adding the $400,000 dividend, the total net income required is $952,500 ($552,500 + $400,000).

Ting Technology Has a Capital Budget of $850,000, It Wants