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Question
Walter Industries is a family owned concern. It has been using the residual dividend model, but family members who hold a majority of the stock want more cash dividends, even if that means a slower future growth rate. Neither the net income nor the capital structure will change during the coming year as a result of a dividend policy change to the indicated target payout ratio. By how much would the capital budget have to be cut to enable the firm to achieve the new target dividend payout ratio? Do not round intermediate calculations.
% Debt 45%
% Equity = 1.0 % Debt 55%
Capital budget under the residual dividend model $5,000,000
Net income; it will not change this year even if dividends increase $3,500,000
Equity to support the capital budget = % Equity Capital budget $2,750,000
Dividends paid = NI Equity needed $750,000
Currently projected dividend payout ratio 21.4%
Target dividend payout ratio 43%
u200b
a. -$1,372,727
b. -$1,098,182
c. -$1,537,455
d. -$1,249,182
e. -$1,496,273
Answer
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Related questions
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u200b u200b
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