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?

Question

Quizplus · Accepted Answer

The amount of new investment which must be financed with equity is:
$2, 000, 000 ×65% = $1, 300, 000.Since the firm has $1, 800, 000 of net income only $500, 000 = $1, 800, 000 - $1, 300, 000 will be left for dividends.

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