Suppose a firm pays total dividends of $750,000 out of net income of $2 million. What would the firm's retention ratio be?

Question

Quizplus · Accepted Answer

The retention ratio is calculated as the portion of net income that is retained or reinvested by the firm rather than distributed as dividends. It is calculated as (Net Income - Dividends) / Net Income. In this case, it would be ($2,000,000 - $750,000) / $2,000,000 = $1,250,000 / $2,000,000 = 0.625 or 62.50 percent.

Suppose a Firm Pays Total Dividends of $750,000 Out of Net