Strategic Systems expects to have a net income of $800,000 during the

QUESTION

Strategic Systems expects to have a net income of $800,000 during the next year. Its target and current capital structure is 40% debt and 60% common equity. The Director of Capital Budgeting has determined that the optimal capital budget for next year is $1.2 million. If strategic uses the res
Next years Expected Net Income $800,000 Target Capital Structure: Equity: 60% Debt : 40% Optimal Capital budget for next year $1,200,000 Equity = 0.6 * $1,200,000 = $720,000 Debt = 0.4* $1,200,000 = $480,000 TotalCapital = $1,200,000 Residual Dvidend = Net Income -Equity Residual Dvidend

= $800,000 -$720,000 = $80,000 Residual Dividend = $80,000 Dividend Payout Ratio = ResidualDividend / Net Income Dividend Payout Ratio = $80,000 / $800,000 Dividend PayoutRatio = 0.10 (or) 10%

ANSWER:

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