Petersen Co

Multiple Choice

Petersen Co. has a capital budget of $1,200,000. The company wants to maintain a target capital structure that is 60 percent debt and 40 percent equity. The company forecasts that its net income this year will be $600,000. If the company follows a residual distribution policy (with all distributions in the form of dividends) , what will be its payout ratio?

A) 0%
B) 20%
C) 40%
D) 60%
E) 80%