Blease Inc.has a capital budget of $625,000,and it wants to maintain a target capital structure of 60% debt and 40% equity.The company forecasts a net income of $475,000.If it follows the residual dividend policy,what is its forecasted dividend payout ratio?

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Quizplus · Accepted Answer

Under the residual dividend policy, dividends are paid out from the residual or leftover equity after all capital budget needs are met. Blease Inc. needs 40% of $625,000 for equity, which is $250,000. With a net income of $475,000, the residual income for dividends is $475,000 - $250,000 = $225,000. The dividend payout ratio is $225,000 / $475,000 = 47.37%.