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 Consider the case of Purple Hedgehog Forestry Company: Purple Hedgehog Forestry Company has generated earnings of $240,000,000. Its target capital structure consists of 60% equity and 40% debt. It plans to spend $83,000,000 on capital projects over the next year and expects to finance this investment in the same proportion as its capital structure. The company makes distributions in the form of dividends. 40% Debt 6096 Equity What will Purple Hedgehog Forestry's dividend payout ratio be if it follows a residual dividend policy? 79.25% 75.29% 87.18% 83.21% If Purple Hedgehog Forestry increases its debt ratio, then its dividend payout ratio will all other factors are held constant. , assuming that Green Parrot Cruise Group has very stable, predictable earnings, but its capital investment tends to be lumpy. That means that its required capital budget usually is relatively low, but every few years some large expenditures cause the firm's capital budget to be quite large. Green Parrot Cruise follow a strict residual dividend policy. should should not