Stargell Industries Follows a Strict Residual Dividend Policy

question 54

Multiple Choice

Stargell Industries follows a strict residual dividend policy.The company has a capital budget of $3,000,000.It has a target capital structure which consists of 30 percent debt and 70 percent equity.The company forecasts that its net income will be $3,500,000.What will be the company's payout ratio this year?

• A) 25%
• B) 30%
• C) 35%
• D) 40%
• E) 45%

---

Definitions:

Interest Rate

This represents the percentage of the principal that lenders charge borrowers for the access to assets.

Investment

Allocation of resources, usually money, in the expectation of generating an income or profit.

Stop Contact

A Stop Contact is a type of electrical contact used in stop buttons or emergency stop circuits to halt machine operation for safety.