Bavarian Brewhouse had aftertax earnings of $1,500,000 in 2004.The company needs $2,500,000 for new investments and plans to finance 60% of those investments with debt.If Bavarian Brew follows a residual dividend policy,what total dividend will be paid?

Question

Quizplus · Accepted Answer

amount of debt to be raised: 2,500,000(.6)= 1,500,000
equity needed: 1,000,000
amount available for dividends = 1,500,000 - 1,000,000 = 500,000

Bavarian Brewhouse Had Aftertax Earnings of $1,500,000 in 2004