Sanchez Company has planned capital expenditures that total $2,000,000.The company wants to maintain a target capital structure that is 35% debt and 65% equity.The company forecasts that its net income this year will be $1,800,000.If the company follows a residual dividend policy, what will be its total dividend payment?
A) $100,000
B) $200,000
C) $300,000
D) $400,000
E) $500,000

Question

Quizplus · Accepted Answer

Under a residual dividend policy, dividends are paid from the residual or leftover equity after all capital expenditures are funded. The equity portion of the capital expenditure is 65% of $2,000,000, which is $1,300,000. The residual income available for dividends is $1,800,000 - $1,300,000 = $500,000.

Sanchez Company Has Planned Capital Expenditures That Total $2,000,000