Thenewbalancesheetwillbe marketvaluebalancesheet cash

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Unformatted text preview: tal dividends paid will be: $1.10 per share (35,000 shares) = $38,500 The equity and cash accounts will both decline by $35,000. The new balance sheet will be: Market Value Balance Sheet Cash Fixed assets Total $ 51,500 325,000 $376,500 Equity Total $376,500 $376,500 13. a. The payout ratio is the dividend per share divided by the earnings per share, so: Payout ratio = $1.60/$7.62 Payout ratio = 0.2100 or 21.00% b. Under a residual dividend policy, the additions to retained earnings, which is the equity portion of the planned capital outlays, is the retained earnings per share times the number of shares outstanding, so: Equity portion of capital outlays = 6,500,000 shares ($7.62 – 1.60) Equity portion of capital outlays = $39,130,000 The debt‐equity ratio is the new borrowing divided by the new equity, so: D/E ratio = $19,000,000/$39,130,000 D/E ratio = 0.4856 [3] Answer the following Multiple‐choice questions 1. Arden Manufacturing follows a strict residual dividend policy. The company is forecasting that its net income will be $500 million this year. The company anticipates that its capital budget will be $250 million. T...
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This note was uploaded on 08/26/2013 for the course ECON 1102 taught by Professor Henry during the Three '08 term at University of New South Wales.

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