FM11_Ch_18_P10_Build_a_Model

FM11_Ch_18_P10_Build_a_Model - Chapter 18. Ch 18-10 Build a...

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Unformatted text preview: Chapter 18. Ch 18-10 Build a Model Input Data Dividend per share \$3.00 Target equity ratio 60% Target debt ratio 40% Shares outstanding 1,000,000 Net Income \$8,000,000 Total capital budget \$10,000,000 Required retained earnings = Total capital budget x Target equity ratio Required retained earnings = \$10,000,000 x 60% Required retained earnings = \$6,000,000 Dividend per share = (Net Income- Required RE) / Shares outst Dividend per share = \$8,000,000 - \$6,000,000 / 1,000,000 Dividend per share = \$2.00 So, following the residual policy would require a dividend c Dividend payout ratio = Dividend paid / Net Income Dividend payout ratio = \$2,000,000 / \$8,000,000 Dividend payout ratio = 25% Desired DPS = \$3.00 Retained earnings for cap. budget = Net Income- DPS x Retained earnings for cap. budget = \$8,000,000 - \$3.00 x Retained earnings for cap. budget = \$5,000,000 Buena Terra Corporation is reviewing its capital budget for the upcoming year. It has paid a \$3.00 divid share (DPS) for the past several years, and its shareholders expect the dividend to remain constant for the...
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This note was uploaded on 03/16/2011 for the course FM 11 taught by Professor Teerana during the Spring '11 term at Thammasat University.

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FM11_Ch_18_P10_Build_a_Model - Chapter 18. Ch 18-10 Build a...

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