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16 July, 01:05

Torrence Inc. has the following data. If it uses the residual dividend model, how much total dividends, if any, will it pay out? Capital budget $1,025,000 % Debt 60% Net income (NI) $665,000

a.$316,200

b.$211,650

c.$234,600

d.$255,000

e.$193,800

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Answers (1)
  1. 16 July, 03:57
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    d. $255,000

    Explanation:

    Data provided

    Net income = $665,000

    Capital budget = $1,025,000

    Debt = 60%

    The calculation of total dividends is shown below:-

    Total dividend (using residual dividend approach) = Net income - Equity

    = $665,000 - ($1,025,000 * (1 - 0.60))

    = $665,000 - ($1,025,000 * 0.40)

    = $665,000 - $410,000

    = $255,000

    Total dividend to be paid by Torrence Inc. = $ 255,000
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