Question

(Dividend Payout): AT&T may be forced to cut its dividend so it is carefully bidding on projects which are profitable. It is currently evaluating 3 projects and AT&T can spend S6 million on each project (for a total of $18 million) if it is profitable. Its 3 projects are: Project WACC IRR 1590 10% 8% 13% 11% 9% Project Fiber Optics Project Data Streaming Project AI If the optimal capital structure is 60% equity financing and net income is projected to be $9.75 million, calculate the dividend payout ratio for AT&T

Answer 1

Expected Dividend Payout Ratio for AT &T

Total Dividend paid using the residual dividend policy

Total Dividend Paid = Net Income – [Total Capital Budget x Equity Ratio]

= $9,750,000 – [$6,000,000 x 60%]

= $9,750,000 - $3,600,000

= $6,150,000

Expected Dividend Payout Ratio

Therefore, the Expected Dividend Payout Ratio = [Total Dividend Paid / Net Income] x 100

= [$6,150,000 / $9,750,000] x 100

= 63.08%

“Therefore, the Expected Dividend Payout Ratio for AT &T will be 63.08%”