Suppose a firm pays total dividends of $125,000 out of net income of $500,000. 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 by the firm rather than paid out as dividends. It is calculated as (Net Income - Dividends) / Net Income. In this case, (500,000 - 125,000) / 500,000 = 375,000 / 500,000 = 0.75 or 75%.

Suppose a Firm Pays Total Dividends of $125,000 Out of Net