Yellow Duck Distribution Company has generated earnings of $$240,000,000.$ Its target capital structure consists of $60\%$ equity and $40\%$ debt. It plans to spend $$88,000,000$ 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.

What will Yellow Duck Distribution's dividend payout ratio be if it follows a residual distribution policy?

$78\mathrm{.}00\%$

$81\mathrm{.}90\%$

$46\mathrm{.}80\%$

$62\mathrm{.}40\%$

If Yellow Duck Distribution Company 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 Yellow Duck Distribution will pay out in dividends this year will decrease.

The amount that Yellow Duck Distribution will pay out in dividends this year will increase.