Redwood Systems Follows a Strict Residual Distribution Policy (With All

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%