Residual Dividends
Chapter 14. Residual Dividends
Residual Dividend
-2011 Net Income $15.0 Million
-2012 Net Income increase by 8%
-Capital structure 35% Debt, 65% Equity
-2011 paid $3.0 million cash dividends
-2012 invest a major capital project; capital budget for the project is $12.0 million
1. Cash dividends 2012: 3,000,000 x (1+0.08) = 3,000,000 x 1.08 = 3,240,000 payout in 2012
2. Dividend Payout ratio 2012 (8%): 3,240,000 / 15,000,000 x (1+0.08) 3,240,000 / 15,000,000 x 1.08 3,240,000 / 16,200,000 = 20% 3. Residual dividend policy, 35% Debt, $12.0 million invests. Residual Dividend payout ration: Net Income 2012 = 15,000,000 x (1+0.08) = 16,200,000 Capital budget in 2012 = 12,000,000 x 65% = 7,800,000 R/E
Residual Dividends 2012 = 16,200,000 – 7,800,000 = 8,400,000
Residual Dividends Payout ratio = 8,400,000 / 16,200,000 = 51.85%
4. Additional capital (Debt/Equity): Equity : 12,000,000 x 65% = 7,800,000 Debt : 12,000,000 x 35% = 4,200,000 5. Pay dividend at current rate of 8% or residual dividend. To make this decision their some factor to consider, taxes rates, income interest rate and so on but the most important if you pay at residual dividend is the company can maintain them self at the high percentage. If there growth is going to continue. Is better to pay at a current dividend growth rate at 8%. This way your growth can continue and you own you are able to pay and maintain.
Chapter 19-3 on Warrants
Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $25.
a. Calculate the
Residual Dividend
-2011 Net Income $15.0 Million
-2012 Net Income increase by 8%
-Capital structure 35% Debt, 65% Equity
-2011 paid $3.0 million cash dividends
-2012 invest a major capital project; capital budget for the project is $12.0 million
1. Cash dividends 2012: 3,000,000 x (1+0.08) = 3,000,000 x 1.08 = 3,240,000 payout in 2012
2. Dividend Payout ratio 2012 (8%): 3,240,000 / 15,000,000 x (1+0.08) 3,240,000 / 15,000,000 x 1.08 3,240,000 / 16,200,000 = 20% 3. Residual dividend policy, 35% Debt, $12.0 million invests. Residual Dividend payout ration: Net Income 2012 = 15,000,000 x (1+0.08) = 16,200,000 Capital budget in 2012 = 12,000,000 x 65% = 7,800,000 R/E
Residual Dividends 2012 = 16,200,000 – 7,800,000 = 8,400,000
Residual Dividends Payout ratio = 8,400,000 / 16,200,000 = 51.85%
4. Additional capital (Debt/Equity): Equity : 12,000,000 x 65% = 7,800,000 Debt : 12,000,000 x 35% = 4,200,000 5. Pay dividend at current rate of 8% or residual dividend. To make this decision their some factor to consider, taxes rates, income interest rate and so on but the most important if you pay at residual dividend is the company can maintain them self at the high percentage. If there growth is going to continue. Is better to pay at a current dividend growth rate at 8%. This way your growth can continue and you own you are able to pay and maintain.
Chapter 19-3 on Warrants
Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $25.
a. Calculate the