Forecasted addition to retained earnings

Reference no: EM13761067

1) Luemas Corporation recently reported the following income statement for 2004 (numbers are in millions of dollars): Sales $12,500 Total operating costs 5,700 EBIT $6,800 Interest 150 Earnings before tax (EBT) $6,650 Taxes (40%) 2,660 Net income available to common shareholders $3,990 The company forecasts that its sales will increase by 8 percent in 2005 and its operating costs will increase in proportion to sales. The company's interest expense is expected to remain at $150 million, and the tax rate will remain at 40 percent. The company plans to pay out 70 percent of its net income as dividends, the other 30 percent will be additions to retained earnings. What is the forecasted addition to retained earnings for 2005?

2) Blease Inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of 60% debt and 40% equity. The company forecasts a net income of $475,000. If it follows the residual dividend policy, what is its forecasted dividend payout ratio?

Reference no: EM13761067

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