Suppose a firm pays total dividends of $165,000 out of net income of $1 million. What would the firm's retention ratio be?

Question

Quizplus · Accepted Answer

The retention ratio is calculated by subtracting the dividend payout ratio from 1 (or 100%). The dividend payout ratio is the dividends paid divided by net income. In this case, it's $165,000 / $1,000,000 = 0.165 or 16.5%. Therefore, the retention ratio is 1 - 0.165 = 0.835 or 83.5%.

Suppose a Firm Pays Total Dividends of $165,000 Out of Net