The capital budget of Creative Ventures Inc.is $1, 000, 000.The company wants to maintain a target capital structure that is 30% debt and 70% equity.The company forecasts that its net income this year will be $800, 000.If the company follows a residual dividend policy, what will be its total dividend payment?

Question

Quizplus · Accepted Answer

The amount of new investment which must be financed with equity is:
$1, 000, 000 ×70% = $700, 000.Since the firm has $800, 000 of net income only $100, 000 will be left for dividends.

The Capital Budget of Creative Ventures Inc