Lignment Attempts 0 Average 0/1 4. Theresidual 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: Globex Corporation is expected to generate $2,200,000 in net income over the next year. Globex Corporation's stockholders expect it to maintain its long-run dividend payout ratio of 40,00% of earnings, If Globex 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