Consider the case of Yellow Duck Distribution Company: Yellow Duck Distribution Company is expected to generate $180,000,000 in net income over the next year. Yellow Duck Distribution has forecasted a capital budget of $83,000,000, and it wishes to maintain its current capital structure of 70% debt and 30% equity. If the company follows a strict residual dividend policy and makes distributions in the form of dividends, what is its expected dividend payout ratio for this year?

A. 81.86%

B. 64.63%

C. 86.17%

D. 73.24%

Question

Business

Ximena Hopkins

31 January, 10:56

Consider the case of Yellow Duck Distribution Company: Yellow Duck Distribution Company is expected to generate $180,000,000 in net income over the next year. Yellow Duck Distribution has forecasted a capital budget of $83,000,000, and it wishes to maintain its current capital structure of 70% debt and 30% equity. If the company follows a strict residual dividend policy and makes distributions in the form of dividends, what is its expected dividend payout ratio for this year?

A. 81.86%

B. 64.63%

C. 86.17%

D. 73.24%

+4

Answers (1)

Know the Answer?

Keith Fuller · Answer 1

C. 86.17%

Explanation:

The computation of the expected dividend payout ratio is shown below:

Expected dividend pay out ratio = 100 - { (capital budget * equity ratio) : (net income} * 100

= 100 - { ($83,000,000 * 30%) : ($180,000,000} * 100

= 100 - (24,900,000 : $180,000,000) * 100

= 100 - 13.83%

= 86.17%

All other information which is given is not relevant. Hence, ignored it