=+LG 2 P14–3 Residual dividend policy A new intern is trying to understand the dividend policy of your firm. Having studied dividend policies at university, the intern wonders why the firm chose its current dividend policy. The intern also wants to know how to estimate the dividend amount that you are likely to pay next year. You may not have all the information for the intern, but you do know the following:

(1) The firm follows a residual dividend policy.

(2) The total capital budget for next year is dependent on the outcome of a feasibility study, and will either be $1.5 million, $2.5 million, or $3.5 million.

(3) The forecasted level of potential retained earnings for next year is $2.2 million.

(4) The firm wants to maintain a debt ratio of 60%.