Redwood Systems Follows a Strict Residual Distribution Policy (With All

question 27

Multiple Choice

Redwood Systems follows a strict residual distribution policy (with all distributions in the form of dividends) . The company estimates that its capital expenditures this year will be $40 million, its net income will be $30 million, and its target capital structure is 60 percent equity and 40 percent debt. What will be the company's dividend payout ratio?

• A) 80%
• B) 60%
• C) 40%
• D) 20%
• E) 15%

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Definitions:

Extraordinary Item

An unusual or infrequent event that is not part of the normal activities of a business and must be reported separately in the financial statements.

Discontinued Operations

Parts of a company's core business or subsidiaries that have been sold, disposed of, or abandoned and are reported separately from continuing operations in financial statements.

Comparative Income Statement

A financial statement that presents the revenues, expenses, and net income for multiple periods to assess a company's financial performance over time.

Operating Divisions

Distinct segments within a company, each responsible for certain operational aspects or market services.