Three independent projects, each of which requires a RS 5 million investment are being considered for investment purpose by Sona Tea Company. The cost of capital and estimated internal rate of return (IRR) for these projects are shown below: Project Cost of capital IRR A 16% 20% B 12% 10% C 8% 9% Company’s capital structure involves only debt and equity financing with the ratio of 50% each. The estimated net income from the selected projects is expected to be RS 7,287,500. What should be the dividend payout ratio If Sona tea company estimate its dividends based on the residual dividend model?
Dividend Policy
A dividend is a part of the profit paid to the shareholder in an organization. The management of the organization has the right to decide the policy for giving a dividend from the earnings to the shareholder. However, an organization is not in the obligation to declare a dividend for the investor. Dividend policy differs from organization to organization. As the management has the only authority to decide dividend rate, dividend amount, and time of dividend payout by considering all other elements that create an impact on the payment of a dividend.
Stocks And Dividends
Stock or equities are generally sold and bought in the Stock Exchange or which is popularly known as the stock market. Stocks are issued in the Stock Exchange for the sole purpose of raising funds for the Corporation or the company itself. Now since an individual has purchased a portion of the Corporation or company, he or she may claim to be a part of the earnings or profit of the company.
Q.No.2
Three independent projects, each of which requires a RS 5 million investment are being considered for investment purpose by Sona Tea Company. The cost of capital and estimated
|
Project |
Cost of capital |
IRR |
|
A |
16% |
20% |
|
B |
12% |
10% |
|
C |
8% |
9% |
Company’s capital structure involves only debt and equity financing with the ratio of 50% each. The estimated net income from the selected projects is expected to be RS 7,287,500. What should be the dividend payout ratio If Sona tea company estimate its dividends based on the residual dividend model?
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