Distributions to Shareholders: Dividends and Share Repurchases

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 Yellow Duck Distribution Inc. Yellow Duck Distribution Inc. is expected to generate $240,000,000 in net income over the next year. Yellow Duck Distribution has forecasted a capital budget of $88,000,000, and it wishes to maintain its current capital structure of 70% debt and 30% equity. 30% Equity 70% Debt 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? 97.90% 84.55% 89.00% 75.65% Yellow Duck Distribution 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? O Yellow Duck Distribution will pay a smaller annual dividend if it goes forward with this decision. O Yellow Duck Distribution's annual dividend will be greater if it goes forward with this decision Orange Marmot Manufacturing Company has very stable, predictable earnings, but its capital investment tends to be lumpy. That means that its required capital budget usually is relatively low, but every few years some large expenditures cause the firm's capital budget to be quite large. Orange Marmot Manufacturing strict residual dividend policy. follow a