Question

The capital budget forecast for the Santano Company is $725,000. The CFO wants to maintain a...

The capital budget forecast for the Santano Company is $725,000. The CFO wants to maintain a target capital structure of 45% debt and 55% equity, and it also wants to pay dividends of $625,000. If the company follows the residual dividend policy, how much income must it earn, and what will its dividend payout ratio be?

Select the correct answer.

a. NI = $1,023,750

Payout = 61.05%
b. NI = $1,023,430

Payout = 61.01%
c. NI = $1,022,470

Payout = 60.89%
d. NI = $1,022,790

Payout = 60.93%
e. NI = $1,023,110

Payout = 60.97%
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