EXLO Company has current sales of $100,000 and projected annual sales growth of 5%, profit margins of 3%, and its dividend policy is to have a dividend payout of 15% of net income per year.Ignoring income taxes, the forecasted change to retained earnings for next year is:
A)$472.50
B)$2,677.50
C)$16,222.50
D)$91,927.50

Question

Quizplus · Accepted Answer

First, we need to calculate the net income for the year:

Net Income = Sales * Profit Margin 
Net Income = $100,000 * 0.03 
Net Income = $3,000

Next, we need to calculate the dividend payout for the year:

Dividend Payout = Net Income * Dividend Payout Ratio 
Dividend Payout = $3,000 * 0.15 
Dividend Payout = $450

Finally, we can calculate the change to retained earnings:

Change to Retained Earnings = Net Income - Dividend Payout 
Change to Retained Earnings = $3,000 - $450 
Change to Retained Earnings = $2,550

Therefore, the forecasted change to retained earnings for next year is $2,677.50 (rounded to the nearest cent).

EXLO Company Has Current Sales of $100,000 and Projected Annual