Question
A company earns $3 million net income for this year and its current capital structure is 40% debt and 60% equity. Its total capital budget
A company earns $3 million net income for this year and its current capital structure is 40% debt and 60% equity. Its total capital budget is $6 million. If this firm follows a strict residual dividend policy and it intends to keep its current capital structure, which of the following statement is correct?
A. The dividend payout ratio is increasing.
B. The dividend payout ratio is decreasing then increasing.
C. No dividend is paid during this year.
D. The dividend payout ratio has remained constant.
E. The dollar amount of capital investments has decreased.
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