A question on financial management (I will appreciate if you can answer me preci

Rainbeauty

Flavortech Inc. expects EBIT of $2,000,000 for the coming year.  The firm’s capital structure consists of 50% debt and 50% equity, and its marginal tax rate is 40%.  The company pays a 10% rate on its $5,000,000 of long-term debt.  One million shares of common stock are outstanding.  In its next capital budgeting cycle, the firm expects to fund one large positive NPV project costing $1,200,000, and it will fund this project in accordance with its target capital structure.  If the firm follows a residual dividend policy and has no other projects, what is its total dividend payout?
计算过程：$2,000,000*(1-40%)-$5,000,000*10%*(1-40%)-1,200,000*50%=300，000。
蛋似，为虾米要用净收益减去equity capital 哪？这个有点理解不了
望各位牛人多多指教！

dodomerry

Maybe it's a little late.
The Corp needs to fund the project in accordance with its target capital structure, so it should put aside 50% of the amount of original investment. That's why the dividend payout exclude the equity capital.

Rainbeauty

Thank you

echo8547

二楼的解释不对。

题目问的是what is its total dividend payout？我们都知道dividend是分给stock owner的，所以他减去的一半不是equity，而是把来自于debit的一半投资减掉，因为在支付dividend之前公司必须还清debit。

DL88

50% debt plust 50% equity to fund the new project. 50% debt is the total project funding *50%.

50% equity comes from EBIT. The remaining of the EBIT can be distributed as dividend payout.