The residual dividend model

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.

Purple Hedgehog Forestry Company is expected to generate $$140,000,000$ in net income over the next year. Purple Hedgehog Forestry's stockholders expect it to maintain its long$-$run dividend payout ratio of $30\%$ of earnings.

If the firm wants to mait $$ tal structure of $60\%$ debt and $40\%$ equity, the maximum capital budget it can support with this year's expected net income is $q,$