Randy Corporation has a capital budget of 2260 and and a Net

Randy Corporation has a capital budget of 226.0 and and a Net Income of 13.0. If Randy\'s target equity fraction is 0.3, what should Randy\'s dividend be under the residual dividend model?

Solution

Capital Budget = 226.0
Net Income = 13.0
Equity Ratio = 0.30

Dividend = Net Income - Capital Budget * Equity Ratio
Dividend = 13.0 - 226.0 * 0.30
Dividend = 13.0 - 67.80
Dividend = -54.80