Silvana Inc. projects the following data for the coming year. If the firm follows the residual dividend policy and also maintains its target capital structure, what will its payout ratio be?
EBIT$2,000,000
Capital budget$850,000
Interest rate10%
% Debt40%
Debt outstanding$5,000,000
% Equity60%
Shares outstanding$5,000,000
Tax rate25%
A. 46.9%
B. 49.3%
C. 51.9%
D. 54.7%
E. 57.4%
Answer: D
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