Ch16 - opportunities). If only $ 400,000 of earnings were...

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CHAPTER 16 Distributions to Shareholders : Dividends and Repurchases
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C. C. Dividends = Net Income - [(Target equity ratio) * (Total capital budget)] = $ 600.000 – 60%*$ 800.000 = $120.000 Hence, payout ratio = 20% The firm could not have a negative dividend. Under the residual policy, if investment opportunities exceed net income, the firm should pay zero dividends and issue stock (or else increase its debt ratio to fund the investment
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Unformatted text preview: opportunities). If only $ 400,000 of earnings were available, the residual policy would call for a zero payment. C. C. (Continued) (Continued) The residual model would result in dividend payments which fluctuate significantly from year to year as capital requirements and internal cash-flows fluctuate. Signaling and clientele effects...
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Ch16 - opportunities). If only $ 400,000 of earnings were...

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