Suppose that a firm is expected to have a net income of $900,000 and its capital budget will be $800,000. The firm's current capital structure and target capital ratio are as follows:

Debt $3 million (30%) Equity $7 million (70%)

Assuming that the firm follows the residual model, show how the target capital ratio (30% debt/70% equity) remains the same after distributing dividends and issuing new debt or equity. You have to show your work based on the new capital amounts.