Herman Corporation had net income of $100,000 and paid dividends of $25,000 to common stockholders and $20,000 to preferred stockholders in 2020.Herman Corporation's common stockholders' equity at the beginning and end of 2020 was $450,000 and $550,000, respectively.Herman Corporation's payout ratio for 2020 is
A)45%.
B)25%.
C)20%.
D)5%.

Question

Quizplus · Accepted Answer

The payout ratio is calculated as the dividends paid to common stockholders divided by the net income. Here, the payout ratio is $25,000 (dividends to common stockholders) / $100,000 (net income) = 25%.

Herman Corporation Had Net Income of $100,000 and Paid Dividends