Suppose a firm has a dividend payout ratio of 45 percent and net income of $500,000. What would be the annual addition to retained earnings?

Question

Quizplus · Accepted Answer

The annual addition to retained earnings is calculated as the portion of net income that is not paid out as dividends. With a dividend payout ratio of 45%, the firm pays out 45% of its net income as dividends and retains 55%. Therefore, the retained earnings would be 55% of $500,000, which is $275,000.

Suppose a Firm Has a Dividend Payout Ratio of 45