(ST–1)

Residual Dividend Components Manufacturing Corporation (CMC) has 1 million shares of stock outstanding. CMC has a target capital structure with 60% equity and 40% debt.

The company projects net income of $5 million and investment projects requiring

$6 million in the upcoming year.

a. CMC uses the residual distribution model and pays all distributions in the form of dividends. What is the projected DPS?

b. What is the projected payout ratio?