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28 May, 11:47

Blease Inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of 60% debt and 40% equity. The company forecasts a net income of $475,000. If it follows the residual dividend policy, what is its forecasted dividend payout ratio?

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  1. 28 May, 13:00
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    Forecasted Dividend Pay-out Ratio = 47.37%

    Explanation:

    Capital Budget = $625,000

    Net Income = $475,000

    Equity Ratio = 40%

    Dividend to be paid = Net Income - Equity Ratio*Capital budget

    Dividend to be paid = 475000 - 40%*675000 = $225,000

    therefore, we have that the fortecast dividend pay-out ratio will be given by:

    Forecasted Dividend Pay-out Ratio = Dividend to be paid/Net Income

    Forecasted Dividend Pay-out Ratio = 225000/475000

    Forecasted Dividend Pay-out Ratio = 47.368% or 47.37%
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