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 $850,000. 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 = $1,249,990

Payout = 68.15%

b. NI = $1,249,680

Payout = 68.13%

c. NI = $1,249,060

Payout = 68.09%

d. NI = $1,248,750

Payout = 68.07%

e. NI = $1,249,370

Payout = 68.11%