Sarah just received a letter from a major stockholder. The stock-holder asks about the company’s dividend policy. In fact, the stockholder has asked you to estimate the amount of dividend that you are likely to pay next year. You have not yet collected all the information about the expected dividend payment but you know the following: • The Company follows a residual dividend policy • The total capital budget for next year is likely to be one of three amounts, depending on the results of capital budgeting studies that are currently underway. The capital expenditure amounts are P2million, P3million and P4million. • The forecasted level of potential retained earnings next year is P2million • The target or optimal capital structure is a debt ratio of 40%. Compute the amount of dividend (or the amount of new stock needed) and the dividend pay-out ratio for each of the the three capital expenditure amounts.
Sarah just received a letter from a major stockholder. The
stock-holder asks about the company’s dividend policy. In fact,
the stockholder has asked you to estimate the amount of
dividend that you are likely to pay next year. You have not yet
collected all the information about the expected dividend
payment but you know the following:
• The Company follows a residual dividend policy
• The total capital budget for next year is likely to be
one of three amounts, depending on the results of
capital budgeting studies that are currently underway.
The capital expenditure amounts are P2million,
P3million and P4million.
• The
next year is P2million
• The target or optimal capital structure is a debt ratio of
40%.
Compute the amount of dividend (or the amount of new
stock needed) and the dividend pay-out ratio for each of the
the three capital expenditure amounts.
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