Victor Rumsfeld Inc.'s dividend policy is under review by its board. Its projected capital budget is $2,000,000, its target capital structure is 60% debt and 40% equity, and its forecasted net income is $600,000. If the company follows a residual dividend policy, what total dividends, if any, will it pay out?

Total dividends will be zero since residual dividend policy gives a negative dividend of $200000

Explanation:

Following the residual dividend policy,the dividends payable to shareholders can be calculated with the below formula:

residual dividend =forecast net income -(equity percentage * capital requirement)

Residual dividend=$600000-($2000000*40%)

Residual dividend=$600000-$800000

Since dividends cannot be taken as negative figure,dividends is nil

Alternatively dividends can be reduced to available net income after payment of interest and taxes

if you use only 25 for your entertainment and only 200 for the groceries that you really need and take out the 50 per month for the computer then that should be enough

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