BaM-Ch17 - Chapter 17 Ch 17-12 Build a Model Buena Terra...

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Chapter 17. Ch 17-12 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 = Required retained earnings = Dividend per share = (Net Income - Required RE) / Shares outstanding Dividend per share = Dividend per share = So, following the residual policy would require a dividend cut. Dividend payout ratio = Dividend paid / Net Income Dividend payout ratio = Dividend payout ratio = Desired DPS = $3.00 Retained earnings for cap. budget = Net Income - DPS x # of shares Retained earnings for cap. budget = Retained earnings for cap. budget = DPS $3.00 Total capital budget $10,000,000 Dividends paid = DPS x # of shares Dividends paid = Dividends paid = RE Available = Net Income - Dividends paid RE Available = RE Available = Portion of cap. budget from equity = RE to be used / Total capital budget Portion of cap. budget from equity = Portion of cap. budget from equity = Portion of cap. budget from debt
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