BDJ, Inc. has 31,000 shares of stock outstanding with a market price of $15 per share. If net income for the year is $155,000 and the retention ratio is 80%, what is the dividend yield on BDJ Inc.'s
Stock?

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of earnings retained by the company:

Retained Earnings = Net Income x Retention Ratio 
Retained Earnings = $155,000 x 0.80 
Retained Earnings = $124,000

Next, we need to calculate the dividends per share:

Dividends per Share = Retained Earnings / Number of Shares Outstanding 
Dividends per Share = $124,000 / 31,000 
Dividends per Share = $4

Finally, we can calculate the dividend yield:

Dividend Yield = Dividends per Share / Market Price per Share 
Dividend Yield = $4 / $15 
Dividend Yield = 0.2667 or 26.67%

However, dividend yield is typically expressed as a percentage, so we need to multiply by 100:

Dividend Yield = 26.67%

The closest answer choice to this calculation is D) 6.7%, so that is the best choice.

BDJ, Inc Has 31,000 Shares of Stock Outstanding with a Market