ABX Sdn Bhd. expects EBIT of RM2,000,000 for the coming year. The firm’s capital structureconsists of 40% debt and 60% equity, and its marginal tax rate is 27%. The cost of equity is 14%and the company pays a 10% rate on its RM5,000,000 long-term debt. One million shares ofcommon stock are outstanding.In the next capital budget cycle, the firm expects to fund one large positive NPV project costingRM1,200,000 and it will fund this project in accordance with its target capital structure. If the firmfollows a residual dividend policy and has no other projects, what is its expected dividend payoutratio?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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ABX Sdn Bhd. expects EBIT of RM2,000,000 for the coming year. The firm’s capital structure
consists of 40% debt and 60% equity, and its marginal tax rate is 27%. The cost of equity is 14%
and the company pays a 10% rate on its RM5,000,000 long-term debt. One million shares of
common stock are outstanding.
In the next capital budget cycle, the firm expects to fund one large positive NPV project costing
RM1,200,000 and it will fund this project in accordance with its target capital structure. If the firm
follows a residual dividend policy and has no other projects, what is its expected dividend payout
ratio?

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