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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Definitions:

Production

The process of creating goods and services, from the input of resources to the output of finished products.

Price Level

The average of the current prices of goods and services in the economy, often compared over time to assess inflation.

Equilibrium GDP

The level of real GDP at which aggregate supply equals aggregate demand, resulting in a stable economy without tendencies to change.

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A fleeting period of economic diminution, involving a dip in trade and industry work, usually defined by a decrease in GDP over two following quarters.