Smathers Jellies follows a residual dividend policy and maintains a constant debt-equity ratio. There are 15,000 shares of stock outstanding at a market price of $10 a share. There are 300 bonds
Outstanding, which are selling at par value. The projected spending on capital projects is $180,000
For next year. Earnings for next year are estimated at $70,000. What is the projected dividend
Amount per share?

Question

Quizplus · Accepted Answer

The correct answer is D. The projected dividend amount per share is $.67. This is calculated by taking the earnings for next year ($70,000) and subtracting the projected spending on capital projects ($180,000). This gives us a residual of $50,000. This residual is then divided by the number of shares outstanding (15,000) to give us a dividend per share of $.67.

Smathers Jellies Follows a Residual Dividend Policy and Maintains a Constant