CFAI vol3 Reading #29 question #21 on page 193

I thought the answer was: 15M (65%) = 9.75M 25M - 9.75M = 15.25M 15.25M/25M = 60% but the solution is different? I’m thinking errata, anyone else?

No. it is not an error. problem mentions capital spending of 15 million to be entirely funded out of this year’s earnings. once that decision has been made - the debt to equity ratio is no longer relevant. so you have 10 left over for the dividend. so 10/25 = 40%.

Thanks I guess the word ENTIRE was missed intially and the Residual Div calculation kicked in…

Worst Question Ever… I wonder if anyone ever got this one correct on the first try. It’s not difficult but EXTREMELY misleading!

Had the same experience with this question. Got tricked by not reading those words EXTREMELY carefully.