Blandon Corporation has 100,000 common shares and 10,000, $1 preferred shares currently issued. During the year, the company paid and declared a 10% stock dividend when the market price of the common shares was $7.75. As well, the company paid the preferred dividend and paid $80,000 in cash to the common shareholders. If Blandon earned $360,000 during the year, its payout ratio is
A) 25.0%.
B) 46.5%.
C) 22.2%.
D) 32.0%.

Question

Quizplus · Accepted Answer

The payout ratio is calculated as dividends paid divided by net income. In this case, the dividends paid are the preferred dividend plus the cash dividend paid to common shareholders, which is $80,000. The net income is $360,000. Therefore, the payout ratio is $80,000/$360,000 = 22.2%.

Blandon Corporation Has 100,000 Common Shares and 10,000, $1 Preferred