Ring Technology has a capital budget of $950,000,it wants to maintain a target capital structure of 35% debt and 65% equity,and it also wants to pay a dividend of $275,000.If the company follows the residual dividend model,how much net income must it earn to meet its capital budgeting requirements and pay the dividend,all while keeping its capital structure in balance?

Question

Quizplus · Accepted Answer

To maintain the capital structure, 65% of the $950,000 capital budget should be financed with equity, which is $617,500. Adding the $275,000 dividend, the total net income required is $617,500 + $275,000 = $892,500.

Ring Technology Has a Capital Budget of $950,000,it Wants to Maintain