Your Company Has Decided That Its Capital Budget During the Coming

Multiple Choice

Your company has decided that its capital budget during the coming year will be $20 million.Its optimal capital structure is 60 percent equity and 40 percent debt.Its earnings before interest and taxes (EBIT) are projected to be $34.667 million for the year.The company has $200 million of assets;its average interest rate on outstanding debt is 10 percent;and its tax rate is 40 percent.If the company follows the residual dividend policy and maintains the same capital structure,what will its dividend payout ratio be?

A) 15%
B) 20%
C) 25%
D) 30%
E) 35%