Residual Dividend Policy. For this and the next question: Caesar Machinery is a large machine shop in the southeast side of town. The company’s capital budget for the next fiscal year is $60 million. Its optimal capital structure calls for a debt ratio of 60%. The company’s earnings before interest and taxes (EBIT) are $98 million for the year. The firm has $200 million in assets, pays an average interest of 10% on all its debt, and has a marginal tax rate of 35%. The firm maintains a residual dividend policy and will keep its optimal capital structure intact. Calculate the dividend amount after the financing of the company’s capital budget.
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