Suppose a firm has a retention ratio of 25 percent, net income of $21 million, and 3 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

Question

Quizplus · Accepted Answer

The firm retains 25% of its net income, meaning it pays out 75% as dividends. The total dividends paid out is 75% of $21 million, which is $15.75 million. Dividing this by 3 million shares gives a dividend per share of $5.25.

Suppose a Firm Has a Retention Ratio of 25 Percent