Question: Selfotech Inc. expects EBIT of $2,000,000 for the current year. The company's capital structure consists of 40% debt & 60% equity, & its marginal tax rate is 40%. The cost of equity is 14%, & the company pays a 10% rate on its $5,000,000 of long-term debt. One million shares of common stock are outstanding. For the next year, the firm expects to fund one large positive NPV project costing $1,200,000, & it will fund this project in accordance with its target capital structure. If the firm follows a residual dividend policy & has no other projects, calculate its expected dividend payout ratio?
[A] 40%
[B] 20%
[C] 0%
[D] 100%
[E] 60%