Coffee Brewers expects sales of $1,500 next year. The proﬁt margin is 5% and the ﬁrm has a 70 percent dividend payout ratio. What is the projected increase in retained earnings?

Question

Quizplus · Accepted Answer

The projected increase in retained earnings is calculated by first determining the net income, which is sales multiplied by the profit margin ($1,500 * 5% = $75). Then, calculate the retained earnings by multiplying the net income by the retention ratio (1 - dividend payout ratio), which is $75 * (1 - 0.70) = $22.50.

Coffee Brewers Expects Sales of $1,500 Next Year