Chicago Brewing has the following data, dollars in thousands. If it follows the residual dividend model, what will its dividend payout ratio be?
A) 48.11%
B) 50.52%
C) 55.57%
D) 61.13%
E) 67.24%

Question

Quizplus · Accepted Answer

The residual dividend model states that the dividend payout ratio is equal to (1 - b) * ROE, where b is the retention ratio and ROE is the return on equity. In this case, the ROE is 15% and the retention ratio is 40%, so the dividend payout ratio is (1 - 0.40) * 0.15 = 0.4811, or 48.11%.

Chicago Brewing Has the Following Data, Dollars in Thousands