by residual dividend policy
why not payout rate=(25-15*65%)/25=60%?
Earnings available for dividends = Earnings – Capital spending = $25
million – $15 million = $10 million; $10 million/$25 million = 40 percent dividend
Capital spending is all for equityand it is not debt’s responsibility.
but not consist in this example. (reading 21-Q31-coporate finance)
the answer is A
Q31 states that capital expenditure would be funded under the target capital structure, which involves some debt financing. While in Q26, the question states that all capital expenditure is funded by earning only. That’s why we don’t take into account the debt portion in Q26.