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 Red Bison Petroleum Producers Inc.: Red Bison Petroleum Producers Inc. has generated earnings of $180,000,000. Its target capital structure consists of 60% equity and 40% debt. It plans to spend $85,000,000 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. 60% 40% Debt Equity What will Red Bison Petroleum Producers's dividend payout ratio be if it follows a residual dividend policy? 71.67% 78.84% 53.75% 68.09% If Red Bison Petroleum Producers 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 Red Bison Petroleum Producers will pay out in dividends this year will increase. The amount that Red Bison Petroleum Producers will pay out in dividends this year will decrease. 071.67% O 78.84% O 53.75% 0 68.09% If Red Bison Petroleum Producers 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 Red Bison Petroleum Producers will pay out in dividends this year will increase. The amount that Red Bison Petroleum Producers will pay out in dividends this year will decrease. Blue Guppie Seafood Company 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. Blue Guppie Seafood follow a strict residual dividend policy should not should What kind of company is most likely to follow a strict residual dividend policy? O A firm with stable, predictable earnings and investment All companies A firm whose investment needs change often A firm whose earnings are cyclical and follow the economy O O