A ﬁrm currently has sales of $550,000, a 6% proﬁt margin and a 40% dividend payout ratio. What is the anticipated amount of dividends to be paid to shareholders if sales are expected to increase by
5%?

Question

Quizplus · Accepted Answer

First, we need to find the current amount of profit:
$550,000 x 0.06 = $33,000 (current profit)
Next, we need to find the amount of net income:
$33,000 x (1-0.40) = $19,800 (net income)
Then, we can find the amount of dividends:
$19,800 x 0.40 = $7,920 (current dividends)
To find the anticipated amount of dividends with a 5% increase in sales, we need to first find the anticipated net income:
$550,000 x 1.05 x 0.06 x (1-0.40) = $25,410 (anticipated net income)
Finally, we can find the anticipated amount of dividends:
$25,410 x 0.40 = $10,164 (anticipated dividends)
Therefore, the best choice is B.

A ﬁRm Currently Has Sales of $550,000, a 6% Proﬁt