Calculate payout ratio given the following information: EBIT $150,000; interest expense $16,000; tax rate 30%; dividends paid $40,000.

Question

Quizplus · Accepted Answer

The payout ratio is calculated as Dividends Paid / Net Income. First, calculate Net Income: EBIT - Interest = Earnings Before Taxes (EBT); EBT - Taxes = Net Income. So, $150,000 - $16,000 = $134,000 (EBT); $134,000 * (1 - 0.30) = $93,800 (Net Income). Then, $40,000 / $93,800 = 0.4264 or 42.64%.

Calculate Payout Ratio Given the Following Information: EBIT $150,000; Interest