The residual dividend policy approach to dividend policy is based on the theory that a...
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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. Yellow Duck Distribution Inc. 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 dividend policy? 78,00% 66.30% 74.10% 62.40%
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