D Paul Inc

question 21

Multiple Choice

D. 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 it also wants to pay dividends of $500,000. If the company follows the residual dividend policy, how much income must it earn, and what will its dividend payout ratio be? Net Income
Payout
W. $898,750
55) 63%
X.$943,688
58) 41%
Y.$990,872 61) 34%
Z.$1,040,415
64) 40%

• A) Choice W
• B) Choice X
• C) Choice Y
• D) Choice Z

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Definitions:

Contribution Margin

A financial metric that represents the difference between a product's sales revenue and its variable costs.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in the cost of a unit of product.

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in the cost of a unit of product.

Inventory

Items held for sale in the ordinary course of business, as well as supplies and materials used in producing goods for sale.