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(Round to the nearest dollar.) a. If the capital expenditure amount is $2 million, the amount of dividend the firm can pay is $

(Round to the nearest dollar.) a. If the capital expenditure amount is $2 million, the amount of dividend the firm can pay is $

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Residual dividend policy As president of Young's of California, a large clothing chain, you have just received a letter from a major stockholder. The stockholder asks about the company's dividend policy. In fact, the stockholder has asked you to estimate the amount of the dividend that you are likely to pay next year. You ions have not yet collected all the information about the expected dividend payment, but you do know the following: (1) The company follows a residual dividend policy. (2) The total capital budget for next year is likely to be one capital expenditure amounts are $2 million, $3 million, and $4 million. (3) The forecasted level of potential retained earnings next year is $2 million. (4) The target or optimal capital structure is a debt ratio of 35%. You have decided to respond by sending the stockholder the best information available to you. three amounts, depending on the results of capital budgeting studies that are currently under way. The a. Compute the amount of the dividend (or the amount of new common stock needed) and the dividend payout ratio for each of the three capital expenditure amounts. a. If the capital expenditure amount is $2 million, the amount of dividend the firm can pay is $ (Round to the nearest dollar.) Enter your answer in the answer box and then click Check Answer. 6 parts remaining Clear All Check Answer Type here to search
Transcribed Image Text:Residual dividend policy As president of Young's of California, a large clothing chain, you have just received a letter from a major stockholder. The stockholder asks about the company's dividend policy. In fact, the stockholder has asked you to estimate the amount of the dividend that you are likely to pay next year. You ions have not yet collected all the information about the expected dividend payment, but you do know the following: (1) The company follows a residual dividend policy. (2) The total capital budget for next year is likely to be one capital expenditure amounts are $2 million, $3 million, and $4 million. (3) The forecasted level of potential retained earnings next year is $2 million. (4) The target or optimal capital structure is a debt ratio of 35%. You have decided to respond by sending the stockholder the best information available to you. three amounts, depending on the results of capital budgeting studies that are currently under way. The a. Compute the amount of the dividend (or the amount of new common stock needed) and the dividend payout ratio for each of the three capital expenditure amounts. a. If the capital expenditure amount is $2 million, the amount of dividend the firm can pay is $ (Round to the nearest dollar.) Enter your answer in the answer box and then click Check Answer. 6 parts remaining Clear All Check Answer Type here to search
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