Residual Distribution Model Puckett Products is planning for

Residual Distribution Model

Puckett Products is planning for $2.7 million in capital expenditures next year. Puckett\'s target capital structure consists of 70% debt and 30% equity. If net income next year is $1.7 million and Puckett follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio? Round your answer to two decimal places.

Solution

Capital expenditures =2.7 Million

30% by Equity=2.7*30%=.81

Balance net income distrbuted =1.7-.81=.89

Hence Dividend Payout =.89/1.7=52.35%