Axel Steel Company's current net income is Rs 20 million. Present debt ratio of Axel is 50 percent. Axel has Rs 30 million of inves< fim output mask ment opportunity. If residual dividend policy is…

Step 1: Calculate Total Capital

• Net Income = Rs 20 million
• Debt Ratio = 50% ⇒ Debt = 50% of Total Capital
• Let Total Capital = C
• Debt = 0.5C ⇒ Equity = 0.5C

Step 2: Determine Retained Earnings

• Investment Opportunity = Rs 30 million
• Under Residual Dividend Policy, dividends are paid only after funding the investment from retained earnings.
• Retained Earnings = Net Income = Rs 20 million
• Since Rs 20 million < Rs 30 million, no dividend is paid.

Step 3: Dividend Payout Ratio

• Dividend Payout Ratio = (Dividend Paid / Net Income) × 100
• Dividend Paid = Rs 0 million
• Dividend Payout Ratio = 0%