Paul Inc Forecasts a Capital Budget of $725,000

question 7

Multiple Choice

Paul Inc. forecasts a capital budget of $725,000. The CFO wants to maintain a target capital structure of 45% debt and 55% equity, and she also wants to pay a dividend of $500,000. If the company follows the residual dividend model, how much income must it earn, and what will its dividend payout ratio be?

• A) $ 898,750; 55.63%
• B) $ 943,688; 58.41%
• C) $ 990,872; 61.34%
• D) $1,040,415; 64.40%
• E) $1,092,436; 67.62%

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Definitions:

Forecasting

The practice of making predictions about future events or trends based on historical data and analysis, often used in planning and decision-making processes.

Replenishment Plans

Strategies or methods used to determine when and how much inventory should be restocked.

Delphi Technique

A forecasting method that relies on a panel of experts answering questionnaires in two or more rounds to reach a consensus on the predictions for future events.

Kanban Systems

A workflow management method for defining, managing, and improving services that deliver knowledge work, using visual cues to trigger actions.