O'Hara's Market has net income of $1.6 million and 525,000 shares of stock outstanding. What is the amount of the dividends per share if the plowback ratio is 60%?

Question

Quizplus · Accepted Answer

Plowback ratio = 1 - Dividend payout ratio
Dividend payout ratio = Dividends / Net income
Given plowback ratio = 60%
So, dividend payout ratio = 40% (as 100% - 60% = 40%)

Net income = $1.6 million
Dividend payout ratio = 40% = 0.4
Dividends = Net income x Dividend payout ratio
Dividends = $1.6 million x 0.4
Dividends = $0.64 million

Dividends per share = Dividends / Number of shares
Dividends per share = $0.64 million / 525,000 shares
Dividends per share = $1.22

Therefore, the amount of dividends per share is $1.22. The correct answer is (C).

O'Hara's Market Has Net Income of $1