Drekker, Inc. has revenues of $312,766, costs of $220,222, interest payment of $31,477, and a tax rate of 34 percent. It paid dividends of $34,125 to shareholders. Find the firm's dividend payout ratio and retention ratio. (Round your percentage answers to nearest whole number.)

Question

Quizplus · Accepted Answer

The dividend payout ratio is calculated as Dividends / Net Income. First, calculate the Net Income: Net Income = (Revenues - Costs - Interest) * (1 - Tax Rate) = ($312,766 - $220,222 - $31,477) * (1 - 0.34) = $61,067 * 0.66 = $40,304.22. Dividend Payout Ratio = $34,125 / $40,304.22 = 0.847 or 85% (rounded to the nearest whole number). The retention ratio is the opposite of the payout ratio, so it is 100% - 85% = 15%.