The residual distribution 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 Purple Hedgehog Forestry Group: 60% Debt 40% Equity Purple Hedgehog Forestry Group is expected to generate $180,000,000 in net income over the next year. Purple Hedgehog Forestry's stockholders expect it to maintain its long-run dividend payout ratio of 20% of earnings. If the firm 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 Purple Hedgehog Forestry 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? Purple Hedgehog Forestry's annual dividend will be greater if it goes forward with this decision. O Purple Hedgehog Forestry will pay a smaller annual dividend if it goes forward with this decision.