Petersen Co. has a capital budget of $ 996. The company wants to maintain a targ

Question

Petersen Co. has a capital budget of $ 996. The company wants to maintain a target capital structure that is 47 percent debt and remaining percent is equity. The company forecasts that its net income this year will be $ 590. If the company follows a residual distribution policy (with al distributions in the form of cash dividends), what will be its payout ratio? Enter your answer to the nearest .1%. Enter your answer as a whole number, thus 25.1% would be 25.1 not .251. Do not use % signs in your answer. Your Answer

Explanation / Answer

amount to be financed= 996

debt financing= 996*47%= 468

equity financing= 996-468= 528

amount of retained earnings available from net income= 590

amount available for dividends after retaining amount for capital budget= 590-528= 62

amount of dividend= 62

payout ratio= amount of dividend/net income *100= 62/590 *100= 10.5

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