Question

The projected capital budget of Kandell Corporation is $1,000,000, its target capital structure is 60% debt and 40% equity, and its forecasted net income is $550,000. If the company follows a residual dividend policy, what total dividends, if any, will it pay out?

Answer 1

The total dividends, if any, will it pay out is $150,000

Step-by-step explanation:

The computation of the total dividend is shown below;

= Forecasted net income - (equity percentage × projected capital budget)

= $550,000 - (40% × $1,000,000)

= $550,000 - $400,000

= $150,000

We consider the equity percentage instead of the debt percentage and the other information is also consider for the computation part.