Settles Corporation has provided the following financial data:
Dividends on common stock during Year 2 totaled $5,400. The market price of common stock at the end of Year 2 was $5.89 per share.
-The company's dividend payout ratio is closest to:
A) 1.3%
B) 1.7%
C) 17.1%
D) 26.3%

Question

Settles Corporation has provided the following financial data:
   Dividends on common stock during Year 2 totaled $5,400. The market price of common stock at the end of Year 2 was $5.89 per share.
-The company's dividend payout ratio is closest to:
A) 1.3% 
B) 1.7% 
C) 17.1% 
D) 26.3%

Quizplus · Accepted Answer

Earnings per share = Net Income ÷ Average number of common shares outstanding*
= $17,500 ÷ 90,000 shares = $0.19 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $270,000 ÷ $3 per share = 90,000 shares
Dividend payout ratio = Dividends per share* ÷ Earnings per share
= $0.05 ÷ $0.19 = 26.3% (rounded)
*Dividends per share = Common dividends ÷ Common shares (see above)
= $4,500 ÷ 90,000 shares = $0.05 per share (rounded)

Settles Corporation Has Provided the Following Financial Data