Ring 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?
A) $904,875
B) $952,500
C) $1,000,125
D) $1,050,131
E) $1,102,638

Question

Quizplus · Accepted Answer

To maintain the capital structure, equity needed is 65% of $850,000, which is $552,500. Adding the dividend of $400,000, the total net income required is $952,500.

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