The board of directors of the company has asked for expected capital
budgeting and the residual dividend payouts for the next year. The best planned capital investment appears to require a capital budget of $5,000,000, while available retained earnings are forecast to be $3,000,000. The policy for capital structure is 45% debt and 55% equity.
(A) Determine the apparent dividend payout ratio and amount of potential dividends.
(B) Under a residual dividend policy, what is the relationship between the amount of capital investments undertaken and the dividends paid?
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