Lafayette, Inc. follows a residual dividend policy. Lafayette, Inc. will have $750,000 in profits this year. It is accepting five positive net present value projects for a total cost of $450,000. How much will Lafayette, Inc. pay out to its shareholders this year?

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Under a residual dividend policy, a company pays dividends from the leftover or residual earnings after all positive net present value projects are funded. Lafayette, Inc. has $750,000 in profits and will spend $450,000 on projects, leaving $300,000 ($750,000 - $450,000) to pay out to shareholders.