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The Wei Corporation expects next year's net income to be $10 million. The firm is currently financed with 50% debt. Wei...

The Wei Corporation expects next year's net income to be $10 million. The firm is currently financed with 50% debt. Wei has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei's dividend payout ratio be next year? Round your answer to two decimal places.

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Answer #1

Investment opportunity = $12 million

Equity needed = $12 million * 50% = $6 million

Net Income = $10million

Dividend = $10 million - $6 million = $4 million

Dividend payout ratio = $4milliom/$10million = 40.00%

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