The Wei Corporation expects next year\'s net income to be $15 million. The firm\

Question

The Wei Corporation expects next year's net income to be $15 million. The firm's debt ratio is currently 40%. Wei has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei's dividend payout ratio be next year?
Debt 0.40
Equity 0.60
Capital Budget $1,200,000
Net Income (NI) $15,000,000
Equity Retained $480,000
Remaining Earnings $14,520,000
Payout Ratio (PO) 96.80%

I continue to come up with the wrong answer (96.80%), the correct answer is supposed to be 52%. Please help me figure out what I am doing wrong.

Explanation / Answer

Are you sure Net Income isn't supposed to be $1.5 million? Cause the payout ratio is 52% with that assumption. It seems you either made a typo, or the textbook has a typo.

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