McCann Publishing Has a Target Capital Structure of 35% Debt

McCann Publishing has a target capital structure of 35% debt and 65% equity.This year's capital budget is $850, 000 and it wants to pay a dividend of $400, 000.If the company follows a residual dividend policy, how much net income must it earn to meet its capital budgeting requirements and pay the dividend, all while keeping its capital structure in balance?

A) $904, 875
B) $952, 500
C) $1, 000, 125
D) $1, 050, 131
E) $1, 102, 638

Correct Answer:

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