Strategic Systems Inc. expects to have net income of $800,000 during the next year. Its target, and current, capital structure is 40 percent debt and 60 percent common equity. The Director of Capital Budgeting has determined that the optimal capital budget for next year is $1.2 million. If Strategic uses the residual distribution model (with all distributions in the form of dividends) to determine next year's dividend payout, what is the expected dividend payout ratio?
A) 0%
B) 10%
C) 28%
D) 42%
E) 56%

Question

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The Answer of Strategic Systems Inc. expects to have net income of $800,000 during the next year. Its target, and current, capital structure is 40 percent debt and 60 percent common equity. The Director of Capital Budgeting has determined that the optimal capital budget for next year is $1.2 million. If Strategic uses the residual distribution model (with all distributions in the form of dividends) to determine next year's dividend payout, what is the expected dividend payout ratio?
A) 0%
B) 10%
C) 28%
D) 42%
E) 56%