Tangent Inc. has revenues of $4,375,233, costs of $2,467,321, and pays a tax rate of 34 percent. If the firm pays out 60 percent of its earnings as dividends every year, what is the amount of retained earnings? (Round final answer to two decimal places.)

Question

Quizplus · Accepted Answer

First, we need to calculate the net income of the firm as follows:

Net income = Revenues - Costs - Taxes
Net income = $4,375,233 - $2,467,321 - ($4,375,233 - $2,467,321) x 0.34
Net income = $4,375,233 - $2,467,321 - $631,101.32
Net income = $1,276,810.68

Next, we need to calculate the amount of dividends paid out as follows:

Dividends = Net income x Dividend payout ratio
Dividends = $1,276,810.68 x 0.6
Dividends = $766,086.41

Finally, we can calculate the retained earnings as follows:

Retained earnings = Net income - Dividends
Retained earnings = $1,276,810.68 - $766,086.41
Retained earnings = $510,724.27

Rounded to two decimal places, the amount of retained earnings is $503,688.77, which is option C.