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plla: Grades x Aplia Access- xAplia: Student Question ses aplia.com/af/servlet/quiz?quiz action-takeQuiz&quiz; probGuid QNAPCOA8010100000041ebc610050000&ctx-ream-00578ckum; 2. The residual dividend model AaAa? 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 extemal capital. The firm makes distributions based on the residual earnings. Consider the case of Red Bson Petroleum Producers G Red Bison Petroleum Producers Group is expected to generate $140,000,000 in net income over the next year. Red Bison Petroleum Producers has forecasted a capital budget of $88,000,000, and it wishes to maintain its current capita structure of 70% debt and 30% equity. 30% Equity 70% Delbt 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? ? 60.86% ? 85.20% 68.97% ? 81.14% Red Bison Petroleum Producers is considering using more equity and less debt in its capital structure. Which of these statements best describes how this will affect the firm's annual dividend, assuming that all other factors are held constant? O Red Bison Petroleum Producers's annual dividend will be greater if it goes forward with this decision. O Red Bison Petroleum Producers will pay a smaller annual dividend if it goes forward with this decision if you were to graph a firm's earnings and dividends over the past 20 years, which would you expect to be the most stable over time? O The firm's earnings The firm's dividendsExplanation / Answer
Expected Dividends = 140,000,000 - 0.3*88,000,000 = $113,600,000
Payout Ratio = 113,600,000/140,000,000 = 81.14 %
Ans is 81.14%
Red Bison will pay smaller annual dividends
Firm's Earnings
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