NY Fashions has the following data. If it follows the residual dividend model, how much total dividends, if any, will it pay out? $$\begin{array} { l r }
\text { Capital budget } & \$ 1,500,00 \
\% \text { Debt } & 65 \% \
\text { Net income (NI) } & \$ 550,000
\end{array}$$

A) $20,363
B) $21,434
C) $22,563
D) $23,750
E) $25,000

Question

NY Fashions has the following data. If it follows the residual dividend model, how much total dividends, if any, will it pay out? $$\begin{array} { l r } 
\text { Capital budget } & \$ 1,500,00 \
\% \text { Debt } & 65 \% \
\text { Net income (NI) } & \$ 550,000
\end{array}$$

A) $20,363
B) $21,434
C) $22,563
D) $23,750
E) $25,000

Quizplus · Accepted Answer

Under the residual dividend model, dividends are paid from the residual or leftover equity after all capital expenditures are funded. The equity portion needed for the capital budget is 35% (100% - 65% debt) of $1,500,000, which is $525,000. The net income is $550,000, so the residual available for dividends is $550,000 - $525,000 = $25,000.

NY Fashions Has the Following Data Capital budget $1,500,00% Debt 65% Net income (NI) $550,000\begin{array} { l r } \text { Capital budget } & \$ 1,500,00 \\\% \text { Debt } & 65 \% \\\text { Net income (NI) } & \$ 550,000\end{array} Capital budget % Debt Net income (NI) ​$1,500,0065%$550,000​

NY Fashions Has the Following Data $\begin{array} { l r } \text { Capital budget } & \$ 1,500,00 \\\% \text { Debt } & 65 \% \\\text { Net income (NI) } & \$ 550,000\end{array}$