Brooks Corp.'s projected capital budget is $2,000,000,its target capital structure is 60% debt and 40% equity,and its forecasted net income is $600,000.If the company follows a residual dividend policy,what total dividends,if any,will it pay out?

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Under a residual dividend policy, the company pays dividends from the leftover or residual earnings after financing its capital budget. Brooks Corp. needs $2,000,000 for its capital budget, with 60% financed by debt ($1,200,000) and 40% by equity ($800,000). Since the forecasted net income ($600,000) is less than the equity portion needed for the capital budget ($800,000), there would be no residual earnings left to pay dividends, resulting in a dividend payment of $0.