Broske Industries has a capital budget of $3,000,000, but it wants to maintain a target capital...

Question

Question

Broske Industries has a capital budget of $3,000,000, but it wants to maintain a target capital structure of 40% debt and 60%

Answer 1

Answer #1

The equity value for the firm is calculated below:

Equity = Capital budget x 0.60

Equity = 3,000,000 x 0.60

Equity = 1,800,000

In order to calculate dividend payout ratio, net income is required.

Net income is calculated below:

Net income = Dividend + Equity

Net income = 900,000 + 1,800,000

Net income = 2,700,000

The dividend payout ratio is calculated below:

Dividend payout ratio = Dividend Net income

Dividend payout ratio = 900,000 2,700,000

Dividend payout ratio = 0.3333

Dividend payout ratio is 33.33%.

Thus, the correct option is "d".

Answer 2

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