FIN 516 Week 1 Homework

Course: FIN 516 Advanced Managerial Finance Institution: DeVry Contributor: Amanda Format: DOCX/PPTX Pages: 8

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Week 1 Homework Residual Distribution Model: Given the following information: $5 Million in capital expenditures Capital structure 60% debt 40% equity. If net income next year is $3 million and Puckett follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio? In order to find out the dividend payout (distribution) ratio, I must first find out what the distribution is. Formula: Distribution = Net Income – [(equity) (Capital Expenditures)] Net income = $3 mil Equity = 40% Capital expenditures = $5 mil 3 – [(.40) (5)] 3 – 2 = 1

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