The residual dividend policy approach is based on the theory that a firm's optimal distribution policy is a function of the firm's target capital structure, the investment opportunities that the firm has, and the availability and cost of external capital. The firm makes distributions based on the residual earnings. Consider the following example: ABC Telecom Inc. is expected to generate $140 million in net income over the next year. ABC Telecom Inc. has forecasted a capital budget of $83 million, and it wishes to maintain its current capital structure of 70% debt and 30% equity. 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? If ABC Telecom Inc. reduces the amount of its forecasted capital budget, how will this affect the firm's annual dividend, assuming that all other factors are held constant? The amount that ABC Telecom Inc. will pay out in dividends this year will increase. The amount that ABC Telecom Inc. will pay out in dividends this year will decrease. Most firms have earnings that vary considerably from year to year and do not grow at a reliably constant pace. Furthermore, their required investment may change often. Which of these statements is the most accurate? Most firms can still use the concepts behind a residual dividend policy to make long-run decisions about dividends. A residual dividend policy can't be of any help to most firms