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Whitman Antique Cars Inc. has the following data, and it follows the residual dividend model. Some Whitman family membe...

Whitman Antique Cars Inc. has the following data, and it follows the residual dividend model. Some Whitman family members would like more dividends, and they also think that the firm's capital budget includes too many projects whose NPVs are close to zero. If Whitman reduced its capital budget to the indicated level, by how much could dividends be increased, holding other things constant?

Original capital budget
$3,000,000
New capital budget
$2,150,000
Net income
$3,500,000
% Debt
35%
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The original capital budget is $3,000,000 and new capital budget is $2,150,000. The net income is $3,500,000 and debt percentage is 35% The equity percentage will be 65% (1-35%-65%) Calculate the dividend based on residual dividend model for original capital budget as follows Target equity ratiox Dividend Net income Total oniginal budget) -$3.500.000-(65%x $3,000,000) - $3,500, 000- $1,950,000 - $1,550,000 Calculate the dividend based on residual dividend model for new capital budget as follows Target equity ratio x Dividend Net income Total oniginal budget) Total onginal budget -$3.500.000-(65%x $2.150.000) - $3,500, 000- $1,397,500 - $2,102,500 Calculate the increase in dividend due to change in capital budget as follows Increase in dividend- $2,102,500-$1,550.000 - $552,500 Therefore, the increase in dividend due to change in capital budget is $552,500

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  • Whitman Antique Cars Inc. has the following data, and it follows the residual dividend model. Some Whitman famil...

    Whitman Antique Cars Inc. has the following data, and it follows the residual dividend model. Some Whitman family members would like more dividends, and they also think budget includes too many projects whose NPVs are close to zero. If Whitman reduced its capital budget to the indicated level, by how much could dividends be increased holding other things constant? Original capital budget New capital budget Net income %Debt $3,000,000 $1,900,010 $3,500,000 30% O a. $484,100 O b. $493,500 С. $404,200...

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