How is the payout calculated according to financial principles?

The calculation of payout in financial principles typically considers the relationship between a company's net income and its capital requirements. In the context of option B, the formula involves deducting a portion of the net income based on the target equity ratio and the total capital budget.

When calculating payouts, it's critical to determine how much of the net income can be distributed to shareholders without compromising the company's ability to finance its operations and growth. The target equity ratio represents the proportion of financing that should come from equity versus debt. By multiplying the target equity ratio by the total capital budget, you arrive at the amount of funds that should ideally be retained for investment in the business, ensuring adequate capital for future projects.

Thus, option B conveys the concept of maintaining sufficient capital within the business while also determining the portion of net income that is available for distribution to shareholders. This approach aligns with prudent financial management, balancing shareholder returns with the company’s financing needs.

In contrast, the other options do not effectively capture this balance. Option A includes a total capital budget which does not relate to the payout directly. Option C provides a ratio that focuses on leveraging, not directly addressing payouts. Option D adds retained earnings into the payout calculation, which does not reflect the immediate distribution capability based on the current