Altamonte Telecommunications has a target capital structure that consists of 55% debt and 45% equity. The company anticipates that its capital budget for the upcoming year will be $1,000,000. If Altamonte reports net income of $1,100,000 and it follows a residual dividend payout policy, what will be its dividend payout ratio? Round your answer to two decimal places.

Question

Business

Deshawn Lloyd

7 April, 05:15

Altamonte Telecommunications has a target capital structure that consists of 55% debt and 45% equity. The company anticipates that its capital budget for the upcoming year will be $1,000,000. If Altamonte reports net income of $1,100,000 and it follows a residual dividend payout policy, what will be its dividend payout ratio? Round your answer to two decimal places.

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Answers (1)

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Jaqueline Bailey · Answer 1

59.09%

Explanation:

Dividend paid:

= Net income - (Weight of equity * Capital budget)

= 1,100,000 - (0.45 * 1,000,000)

= $650,000

Hence,

Dividend payout ratio = Dividend : net income

= $650,000 : 1,100,000

= 59.09% (Approx). (or 0.5909 approx).

Therefore, the dividend payout ratio is 59.09%.