McCann Publishing Has a Target Capital Structure of 35% Debt

question 47

Multiple Choice

McCann Publishing has a target capital structure of 35% debt and 65% equity.This year's capital budget is $850,000 and it wants to pay a dividend of $400,000.If the company follows a residual dividend policy, how much net income must it earn to meet its capital budgeting requirements and pay the dividend, all while keeping its capital structure in balance?

• A) $904,875
• B) $952,500
• C) $1,000,125
• D) $1,050,131
• E) $1,102,638

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