Assume that in 2017, The Shallonz Corporation reported net income of $143 million, and paid dividends...

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Assume that in 2017, The Shallonz Corporation reported netincome of $143 million, and paid dividends totaling $36.5 millionthroughout the year. Their net income has been growing at about 5%per year for some time, but it is expected to grow by 20% in 2018.Growth is expected to return to the normal 5% the following yearand thereafter. It has also been estimated that the company willneed about $52 million in funds for capital expenditures in 2018.The company is financed with 70% equity. What will be the company’spayout ratio if it follows a pure residual dividend policy in 2018?What would the payout ratio be if instead they allowed thedividends to grow at the same rate as the long-term growth rate inincome? What would you recommend they do? Please explain exactlywhy.

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Calculation of payout ratio if Shallonz Corporation follows a pure residual dividend policy Residual dividend policy is dividend is distributed to its shareholders after taking into consideration all the fundinginvesting decisions It means whatever is left after taking all this capital expenditure it will be distributed as dividend Dividend is residual decision under this policy Given information Net Income of 2017 143 million Dividend paid See Answer

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Assume that in 2017, The Shallonz Corporation reported netincome of $143 million, and paid dividends totaling $36.5 millionthroughout the year. Their net income has been growing at about 5%per year for some time, but it is expected to grow by 20% in 2018.Growth is expected to return to the normal 5% the following yearand thereafter. It has also been estimated that the company willneed about $52 million in funds for capital expenditures in 2018.The company is financed with 70% equity. What will be the company’spayout ratio if it follows a pure residual dividend policy in 2018?What would the payout ratio be if instead they allowed thedividends to grow at the same rate as the long-term growth rate inincome? What would you recommend they do? Please explain exactlywhy.