Assume that IWT has completed its IPO andhas a $112.5 million capital budget planned forthe coming year. You have determined that itspresent capital structure (80% equity and 20%debt) is optimal, and its net income is forecastedat $140 million. Use the residual distributionapproach to determine IWT’s total dollar distribution. Assume for now that the distributionis in the form of a dividend. Suppose IWT has100 million shares of stock outstanding. Whatis the forecasted dividend payout ratio? What isthe forecasted dividend per share? What wouldhappen to the payout ratio and DPS if net incomewere forecasted to decrease to $90 million? Toincrease to $160 million?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Assume that IWT has completed its IPO and
has a $112.5 million capital budget planned for
the coming year. You have determined that its
present capital structure (80% equity and 20%
debt) is optimal, and its net income is forecasted
at $140 million. Use the residual distribution
approach to determine IWT’s total dollar distribution. Assume for now that the distribution
is in the form of a dividend. Suppose IWT has
100 million shares of stock outstanding. What
is the forecasted dividend payout ratio? What is
the forecasted dividend per share? What would
happen to the payout ratio and DPS if net income
were forecasted to decrease to $90 million? To
increase to $160 million?

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