Express Industrys expected net income for next year is $1.6 million. Its target, and current, capital structure is 30 percent debt and 70 percent common equity. The director of capital budgeting has determined that the optimal capital budget for next year is $2 million. Suppose Express uses the residual dividend policy to determine next years dividend.

What is the expected dividend payout ratio? Can we use the residual dividend policy to set dividends on an annual basis? Explain why.