Frazier Fudge is projecting a growth in sales next year of 10% along with an external financing requirement of $200. They had the following results this year: Sales of $18,000; Assets of $6,460; Current liabilities of $500; Return on Sales of 10%. Calculate their projected dividend payout ratio. (Assume that assets, current liabilities, and income grow with the level of sales.)

Question

Quizplus · Accepted Answer

The projected dividend payout ratio is 80%. This is calculated by dividing the projected dividend of $1,600 by the projected net income of $2,000. The projected dividend is calculated by multiplying the projected net income by the target dividend payout ratio of 80%. The projected net income is calculated by multiplying the projected sales of $19,800 by the return on sales of 10%.

Frazier Fudge Is Projecting a Growth in Sales Next Year