Calculate payout ratio given the following information: cash dividends paid = $6,000; sales = $100,000; cost of goods sold = $45,000; selling and administrative expenses = $25,000; interest expense = $6,000; tax rate = 30%.

Question

Quizplus · Accepted Answer

Payout ratio = (Cash Dividends Paid / Net Income). First, calculate Net Income: Sales - Cost of Goods Sold - Selling and Administrative Expenses - Interest Expense = Earnings Before Tax. Earnings Before Tax - Tax = Net Income. So, $100,000 - $45,000 - $25,000 - $6,000 = $24,000 before tax. Tax = 30% of $24,000 = $7,200. Net Income = $24,000 - $7,200 = $16,800. Payout Ratio = $6,000 / $16,800 = 35.71%.

Calculate Payout Ratio Given the Following Information: Cash Dividends Paid