Problem:
Merlo, Inc. maintains a debt-equity ratio of 0.60 and follows a residual dividend policy. The company has after-tax earnings of $3,300 for the year and needs $2,900 for new investments.
Required:
Question 1: What is the total amount Merlo will pay out in dividends this year?
- $250
- $0
- $1,663
- $1,488
- $1,088
Note: Provide support for your rationale.