Capital structure in balance

Reference no: EM13530603

Tiered Technology (TT) has a capital expenditure budget of R850 000 and wants to maintain a target capital structure of 35% debt and 65% equity. Historically they have paid a fixed dividend amount of R400 000 to its ordinary shareholders. TT management has expressed concern about the fixed payout approach to dividend payments, and would like to change to a residual dividend policy. In using the residual approach management would like to pay a dividend of R400 000 the first time. (a) Calculate the net income TT need to earn in order to meet its capital budgeting requirements and pay a R400 000 dividend under the residual approach, while keeping its capital structure in balance

Reference no: EM13530603

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