Dr. Pepper Co. has a capital budget of $1,500,000. The company wants to maintain a target capital structure that is 70 percent debt and 30 percent equity. The company forecasts that its net income this year will be $1,000,000. If the company follows a residual distribution policy (with all distributions in the form of dividends), what will be its payout ratio

55%

Explanation:

Calculation for what will be its payout ratio

First step is to calculate equity portion

Equity portion= 0.3 * $1,500,000

Equity portion= $450,000

Second Step is to calculate net income amount

that is been left to pay dividend

Net income $1,000,000 -$450,000

Net income= $550,000

Last step is to Calculate the dividend payout ratio

Using this formula

Payout ratio = Dividend/Net Income

Let plug in the formula

Payout ratio=$550,000/$1,000,000

Payout ratio= 0.55*100

Payout ratio=55%

Therefore what will be its payout ratio is 55%

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