Redwood Systems Follows a Strict Residual Distribution Policy (With All

question 27

Multiple Choice

Redwood Systems follows a strict residual distribution policy (with all distributions in the form of dividends) . The company estimates that its capital expenditures this year will be $40 million, its net income will be $30 million, and its target capital structure is 60 percent equity and 40 percent debt. What will be the company's dividend payout ratio?

• A) 80%
• B) 60%
• C) 40%
• D) 20%
• E) 15%

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