4. The residual dividend model The residual dividend policy approach is based on the theory that a company's optimal distribution policy is a function of its target capital structure, the investment opportunities available to the firm, and the availability and cost of its external capital. The firm makes distributions to its shareholders based on its residual earnings. Consider the following example: Blime Inc. is expected to generate $1,800,000 in net income over the next year. Blime Inc. has forecasted a capital budget of $88,000, and it wishes to maintain its current capital structure of 70% debt and 30% equity. If Blime follows a strict residual dividend policy and makes distributions to its shareholders in the form of dividends, its expected dividend payout ratio for this year will be