Residual Distribution Policy
1. Puckett Products is planning for $5 million in capital expenditures next year. Puckett's target capital structure consists of 60 % debt and 40 % equity. If net income next year is $3 million and Puckett follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio?
2. Petersen Company has a capital budget of $1.2 million. The company wan to maintain a target capital structure which is 60 % debt and 40 % equity-The company forecasts that its net income this year will be $600,000. If the company follows a residual distribution model and pays all distributions as dividends, what will be its payout ratio?