Question

The projected capital budget of Kandell Corporation is $1,000,000, its target capital structure is 60% debt and 40% equity, and its forecasted net income is $550,000. If the company follows a residual dividend policy, what total dividends, if any, will it pay out?

a. $122,176
b. $128,606
c. $135,375
d. $142,500
e. $150,000

Answer 1

Answer: e

150,000

Step-by-step explanation:

Answer 2

The correct answer is option (e).

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

Capital budget = $1,000,000

Debt = 60%

Equity = 40%

Net income = $550,000

So, we can calculate the total dividend by using following formula:

Total dividend = net income - ( Equity × Capital budget )

= $550,000 - ( 40% × $1,000,000 )

= $550,000 - $400,000

= $150,000