Paul Inc. forecasts a capital budget of $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 $500,000. If the company follows the residual dividend policy, how much income must it earn, and what will its dividend payout ratio be?
Net Income Payout
(a) $898,750 55.63%
(b) $943,688 58.41%
(c) $990,872 61.43%
(d) $1,040,415 64.40%
(e) $1,092,436 67.62%