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7. Bike Inc.’s expected net income for next year is $1 million. The company’s target and current capital structure is 40% debt and 60% common equity. The optimal capital budget for next year is $1.2 million. If Bike uses the residual distribution model to determine next year’s distribution and makes all distributions in the form of dividends, what is the expected payout ratio? (15 points)

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7. Bike Inc.’s expected net income for next year is $1 million.  The company’s target and current capital

structure is 40% debt and 60% common equity. The optimal capital budget for next year is $1.2 million.  If Bike uses the residual distribution model to determine next year’s distribution and makes all distributions in the form of dividends, what is the expected payout ratio? (15 points)

 
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