To calculate the dividend to be paid by Alpha Company under the residual dividend policy, we need to first determine how much equity is needed from retained earnings after meeting the capital investment needs.
Step 1: Determine equity needed. The total capital investment need is Br 100,000,000. Given the target capital structure of 40% debt and 60% equity:
- Equity needed = 60% of total investment
- Equity needed = 0.60 * Br 100,000,000 = Br 60,000,000
Step 2: Calculate retained earnings available. Alpha Company has a net income of Br 150,000,000 for the year. Under the residual dividend policy, dividends are paid from the earnings left after financing the equity portion of the capital investment needs.
Step 3: Determine dividends to be paid. The amount available for dividends would be the net income minus the equity needed for the investment:
- Available earnings for dividends = Net Income - Equity needed
- Available earnings for dividends = Br 150,000,000 - Br 60,000,000
- Available earnings for dividends = Br 90,000,000
Thus, under the residual dividend policy, the dividend to be paid in the year would be Br 90,000,000.
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