The excel Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250,000. The company is planning to launch a project that will requires an investment of $175,000 next year. Currently the share of excel machinery is $25/share.How much dividend excel Machinery can pay its shareholders this year and what is dividend payout ratio of the company? Assume the Residual Dividend Payout Policy applies.
The excel Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250,000. The company is planning to launch a project that will requires an investment of $175,000 next year. Currently the share of excel machinery is $25/share.How much dividend excel Machinery can pay its shareholders this year and what is dividend payout ratio of the company? Assume the Residual Dividend Payout Policy applies.
Dividend refers to that portion of the profits which is distributed among the shareholders as a return to them for investing in the company. Residual Dividend policy refers to a policy in which no amount of excess cash is held by the business at any given point in time. All the idle cash could either be invested out into the business or it will be distributed among the shareholders in the form of a dividend. Due to the imperfections in the capital, it is very difficult for the companies to follow residual dividend policy rather most of them use the smooth dividend policy.
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