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Expected Payout Ratio

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General Electric's expected net income for next year is 1,000,000. The company's target and current capital structure is 40 percent debt and 60 percent common equity. The optimal capital budget for next year is 1.2 million. If John uses the residual theory of dividends to determine next year's dividend payout, what is the expected payout ratio?

(a). 56 percent

(b). 42 percent

(c). 28 percent

(d). 10 percent

(e). 0 percent

Please include a step-by-step calculation for finding the expected payout ratio of General Electric, using the provided values for net income, target and current capital structure, and optimal capital budget for the next year.

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Solution Summary

This solution provides a step-by-step process for calculating the expected payout ratio of General Electric using the residual theory of dividends, given their net income, target and current capital structure, and optimal capital budget for the next year.

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Dividend payout ratio = Dividend/Net Income

Dividend = Net Income - Retained ...

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