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 $875,000. 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 = $1,273,750 Payout = 68.69%

b. NI = $1,273,910 Payout = 68.71%

c. NI = $1,274,390 Payout = 68.77%

d. NI = $1,274,230 Payout = 68.75%

e. NI = $1,274,070 Payout = 68.73%