Plato Inc Expects to Have Net Income of $5,000,000 During the the Next

Multiple Choice

Plato Inc. expects to have net income of $5,000,000 during the next year. Plato's target capital structure is 35 percent debt and 65 percent equity. The company's director of capital budgeting has determined that the optimal capital budget for the coming year is $6,000,000. If Plato follows a residual distribution policy (with all distributions in the form of dividends) to determine the coming year's dividend, then what is Plato's payout ratio?

A) 38%
B) 42%
C) 58%
D) 33%
E) None of the answers above is correct.