If forecasted net income is $3,600.00 and the expected dividend is $1,098 and the tax rate is 34%, what is the retention ratio?
A) .30.
B) .198.
C) .802.
D) .70.

Question

Quizplus · Accepted Answer

The retention ratio is calculated as 1 minus the dividend payout ratio. The dividend payout ratio is the expected dividend divided by the net income, which is $1,098 / $3,600 = 0.305. Therefore, the retention ratio is 1 - 0.305 = 0.695, which is approximately 0.70.

If Forecasted Net Income Is $3,600