Suppose a firm has a retention ratio of 80 percent, net income of $10 million, and 2 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

Question

Quizplus · Accepted Answer

The dividend payout ratio is the opposite of the retention ratio. If the retention ratio is 80%, the dividend payout ratio is 20% (100% - 80%). With a net income of $10 million, the total dividends paid are 20% of $10 million, which is $2 million. Dividing this by the 2 million shares outstanding gives a dividend per share of $1.00.

Suppose a Firm Has a Retention Ratio of 80 Percent