Question

The projected capital budget of Kandell Corporation is $500,000, its target capital structure is 60% debt and 40% equity, and its forecasted net income is $500,000. If the company follows a residual dividend policy, what total dividends, if any, will it pay out

Answer 1

the total dividend pay out in the case when the residual dividend policy followed is $300,000

Step-by-step explanation:

The computation of the total dividend pay out is given below:

= Net income - (equity × capital budget)

= $500,000 - (0.40 × $500,000)

= $500,000 - $200,000

= $300,000

Hence, the total dividend pay out in the case when the residual dividend policy followed is $300,000