What will be the effect on retained earnings if a firm with 5,000 shares outstanding earns $10 per share and has a 30% plowback ratio? It will increase by:
A) $15,000.
B) $30,000.
C) $35,000.
D) $50,000.

Question

Quizplus · Accepted Answer

The plowback ratio is the portion of earnings retained in the business. With a 30% plowback ratio, the firm retains 30% of its earnings. Total earnings are 5,000 shares * $10 = $50,000. Retained earnings increase by 30% of $50,000, which is $15,000.

What Will Be the Effect on Retained Earnings If a Firm