Coffee Brewers expects sales of $1,500 next year. The profit margin is 5% and the firm has a 70 percent dividend payout ratio. What is the projected increase in retained earnings?

Question

Quizplus · Accepted Answer

The projected profit is 5% of $1,500, which is $75. With a 70% dividend payout ratio, 30% of the profit is retained. Thus, the increase in retained earnings is 30% of $75, which is $22.50.

Coffee Brewers Expects Sales of $1,500 Next Year