Question: Chancellor Industries has retained earnings available of $1.2 million. The firm plans to make two investments that require financing of $950,000 and $1.75 million, respectively.

Chancellor Industries has retained earnings available of $1.2 million. The firm plans to make two investments that require financing of $950,000 and $1.75 million, respectively. Chancellor uses a target capital structure with 60% debt and 40% equity. Apply the residual theory to determine what dividends, if any, can be paid out, and calculate the resulting dividend payout ratio.

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