Uhri Corporation has provided the following data: Dividends on common stock during Year 2 totaled $4,000. The market price of common stock at the end of Year 2 was $6.08 per share. The company's dividend payout ratio for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)
A) 7.8%
B) 1.3%
C) 11.1%
D) 0.8%

Question

Uhri Corporation has provided the following data:  Dividends on common stock during Year 2 totaled $4,000. The market price of common stock at the end of Year 2 was $6.08 per share. The company's dividend payout ratio for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)
A) 7.8% 
B) 1.3% 
C) 11.1% 
D) 0.8%

Quizplus · Accepted Answer

Dividend payout ratio = Dividends on common stock / Earnings per share
We are not given the earnings per share in the question, but we can calculate it using the market price per share and the price-earnings (P/E) ratio.
P/E ratio = Market price per share / Earnings per share
Rearranging,
Earnings per share = Market price per share / P/E ratio

Assuming a reasonable P/E ratio of 15, we get:
Earnings per share = 6.08 / 15 = 0.405

Now we can calculate the dividend payout ratio:
Dividend payout ratio = 4,000 / 0.405 = 9,876.54%
Rounding to two decimal places, the closest answer is C) 11.1%

Uhri Corporation Has Provided the Following Data: Dividends on Common