Choc-lattes Corp.earned $5.00 per share in 2006,and paid a dividend of $2.00 per share.If it earns $5.50 in 2007 and managers seek to increase the dividend to $2.75,its payout ratio will be

Question

Quizplus · Accepted Answer

Payout ratio is the percentage of earnings that a company pays out as dividends to its shareholders.

Payout ratio = Dividends per share / Earnings per share

For 2006, Payout ratio = $2.00 / $5.00 = 0.4 or 40%

For 2007, the earnings per share have increased to $5.50 and the dividend per share is now $2.75.

Payout ratio = $2.75 / $5.50 = 0.5 or 50%

Therefore, the correct answer is B) 50%.

Choc-Lattes Corp