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 $125,000. 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 = $523,960 Payout = 23.90%

b. NI = $524,380 Payout = 23.96%

c. NI = $523,540 Payout = 23.84%

d. NI = $523,750 Payout = 23.87%

e. NI = $524,170 Payout = 23.93%