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5. The residual dividend model The residual dividend policy approach to dividend policy is based...

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Finance

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5. The residual dividend model 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. Red Bison Petroleum Group is expected to generate $240,000,000 in net income over the next year. Red Sison Petroleum has forecasted a capital budget of $86,000,000, and it wishes to maintain its current capital structure of 70% debt and 30% equity 30% Equity 70% Det Red Bison Petroleum Group is expected to generate $240,000,000 in net income over the next year. Red Bison Petroleum has forecasted a capital budget of $86,000,000, and it wishes to maintain its current capital structure of 70% dubt and 30% equity 30% Equity 70% Debt If the company follows a strict residual dividend policy and makes distributions in the form of dividends, what is its expected dividend payout ratio foe this year? 84.79% 62.47% 93.71% 09.25

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