#3

The residual dividend 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 Red Bison Petroleum Producers Group: Red Bison Petroleum Producers Group is expected to generate $200,000,000 in net income over the next year. Red Bison Petroleum Producers Group has forecasted a capital budget of $83,000,000, and it wishes to maintain its current capital structure of 70% debt and 30% equity. If the company follows a strict residual dividend policy and makes distributions in the form of dividends, what is its expected dividend payout ratio for this year? 87.55% 83.17% 91.93% 96.31% Red Bison Petroleum Producers Group is considering using more equity and less debt in its capital structure. Which of these statements best describes how this will affect the firm's annual dividend, assuming that all other factors are held constant? Red Bison Petroleum Producers Group will pay a smaller annual dividend if it goes forward with this decision. Red Bison Petroleum Producers Group's annual dividend will be greater if it goes forward with this decision. Blue Guppie Seafooc capital budget usual Seafood Corporation as very stable, predictable earnings, but its capital investment tends to be lumpy. That means that its required low, but every few years some large expenditures cause the firm's capital budget to be quite large. Blue Guppie follow a strict residual dividend policy