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What percentage of debt in the new capital structure is

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Reference no: EM132595736

Bharat Tea Plantation (BTP) has the following data and it follows the residual dividend policy.

Capital budget $3,000,000

Net income (NI) $3,500,000

Debt ratio now 20%

[Hint: currently, BTP is 20% debt-financed]

BTP majority shareholders is seeking to have the forthcoming dividends increase. The Chief Financial Officer thinks it is feasible for BTP to increase its debt ratio to 60%.

Required:

Question 1: The percentage of equity in the existing capital structure is?

Question 2: The percentage of debt in the new capital structure is?

Question 3: The equity portion of the capital budget under the existing capital structure is?

Question 4: The equity portion of the capital budget under the new capital structure is?

Question 5: The amount of earnings available to pay out dividend under the existing capital structure is?

Question 6: The amount of earnings available to pay out dividend under the new capital structure is?

Question 7: The dividend payout ratio under the existing capital structure is?

Question 8: The dividend payout ratio under the new capital structure is Answer?

Question 9: What is the increase in the dividend payout ratio under the new capital structure, holding other things constant?

Reference no: EM132595736

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