Kelly Varnsen,a junior financial analyst at Vandalay Industries,has been asked to calculate this year's dividend.Kelly has gathered the following data:
CAPEX (spending on fixed assets)= $17,000
Increase in net working capital = $3,000
Target capital structure is 20% debt and 80% equity
Net income is = $17,000.
If Vandalay follows a residual dividend policy,then the dividend payout rate this year is:

Question

Quizplus · Accepted Answer

D_t = 11ea7fdb_fc4d_6f6f_a768_b9f659a91dfa_TB2902_11 D_t × Shares Outstanding = Total Dividends Total Dividends = Net 11ea7fdb_fc4d_6f70_a768_9b52d9c5d333_TB2902_11 - w_E × 11ea7fdb_fc4d_9681_a768_bbd49fe1d196_TB2902_11 11ea7fdb_fc4d_9682_a768_a1b34d1b01e3_TB2902_11 = $17,000 + $3,000 11ea7fdb_fc4d_9683_a768_277cd9dcb382_TB2902_11 = $20,000 w_E = 11ea7fdb_fc4d_9684_a768_11d9ede52120_TB2902_11 = the target capital structure weight for equity: w_E = 0.8 Total Dividends = $17,000 - 0.8 × $20,000 Total Dividends = $1,000 Payout Rate = 11ea7fdb_fc4d_bd95_a768_81d4ab644a0f_TB2902_11 Payout Rate = 11ea7fdb_fc4d_bd96_a768_c1cdc464f036_TB2902_11 Payout Rate = 0.20 or 20%

Kelly Varnsen,a Junior Financial Analyst at Vandalay Industries,has Been Asked