Describe a residual dividend policy

Reference no: EM13293105

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 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 of three amounts, depending on the results of capital budgeting studies that are currently under way. The 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 40%.

You have decided to respond by sending the stockholder the best information available to you.

a. Describe a residual dividend policy.
b. 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.
c. Compare, contrast, and discuss the amount of dividends (calculated in part b) associated with each of the three capital expenditure amounts.

Reference no: EM13293105

Questions Cloud

Determine the bullets electric charge : In a certain region, the earth's magnetic field has a magnitude of 4.7 × 10-5 T and is directed north at an angle of 69° below the horizontal, Determine the bullet's electric charge

What effects on mammoth would result from the stock split : Mammoth Corporation is considering a 3-for-2 stock split. It currently has the stockholders' equity position shown. The current stock price is $120 per share. The most recent period's earnings available for common stock are included in retained ea..

Explain what will be the final pressure in the container : In a 4.09 liter container at 25C are placed 1.23 moles of O2 gas and 3.20 moles of solid C(graphite). If the carbon and oxygen react completely to form CO(g) what will be the final pressure in the container at 25C

Find internal self inductance per unit length of loss-less : Using energy concepts, find the internal self inductance per unitlength of a loss-less, conductive solid wire of radius ρ. You may assume that the current is uniformlydistributed through the cross-section of the wire.

Describe a residual dividend policy : Compare, contrast, and discuss the amount of dividends (calculated in part b) associated with each of the three capital expenditure amounts.

Plot the two capital structures on a set of ebit-eps axes : Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 40% tax rate.

Evaluate the volume of 6 m naoh required to react : Calculate the volume of 6 M NaOH required to react completely with the amount of methyl salicylate you used. How much of the 6 M NaOH that you used was in excess of the theoretical amount?

Determine the electric field amplitude inside inner cylinder : A coaxial transmission line consists of two concentric cylinders.The inner cylinder has radius r1 and the outer cylinder has radius r2. The inner cylinder has a surfacecharge density ρS C.m-2, that is uniformly distributed along its length.

User Account

All Pages