The residual distribution policy approach to dividend policy is based on the theory that a firm's...
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The residual distribution policy approach to dividend policy is based on the theory that a firm's optimal dividend distribution policy is a function of the firm's target capital structure, the investment opportunities available to the firm, and the availability and cost of external capital. The firm makes distributions based on the residual earnings. Consider the case of Yellow Duck Distribution Inc.: 60% Debt 40% Equity Yellow Duck Distribution Inc. is expected to generate $180,000,000 in net income over the next year. Yellow Duck Distribution's stockholders expect it to maintain its long-run dividend payout ratio of 25% of earnings. If the firm wants to maintain its current capital structure of 60% debt and 40% equity, the maximum capital budget it can support with this year's expected net income is The residual distribution policy approach to dividend policy is based on the theory that a firm's optimal dividend distribution policy is a function of the firm's target capital structure, the investment opportunities available to the firm, and the availability and cost of external capital. The firm makes distributions based on the residual earnings. Consider the case of Yellow Duck Distribution Inc.: 60% Debt 40% Equity Yellow Duck Distribution Inc. is expected to generate $180,000,000 in net income over the next year. Yellow Duck Distribution's stockholders expect it to maintain its long-run dividend payout ratio of 25% of earnings. If the firm wants to maintain its current capital structure of 60% debt and 40% equity, the maximum capital budget it can support with this year's expected net income is
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