Ocean company has plans for calling for a capital budget of 60 million. optimal capital structure is 60% equity and 40% debt. EBIT = 98 million, the firm has 200 million in assets, pays an average of 10% on all its debt and has marginal tax rate of 35%, if it maintains a residual distribution policy(with all distributions in the form of dividends) and will keep its optimal capital structure in tact, what will be the amount of the dividends it pays out after financing its capital budget?
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2 Comments
DAVID:
Don’t encourage him.
The amount of a dividend depends on what the Board decide is reasonable. It is not a simple mathematical calculation.