PPT Slide

Of the $800,000 capital budget, 0.60($800,000) = $480,000 must be equity to keep at target capital structure. 0.40($800,000) = $320,000 will be debt.

With $600,000 of net income, the residual is:$600,000 - $480,000 = $120,000= dividends paid.

Payout ratio = $120/$600 = 0.20 = 20%.

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