Addition to retained earnings: Tangent, Inc., has revenues of $4,375,233 and 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?

Question

Quizplus · Accepted Answer

1. First, we need to calculate the net income:

Net Income = Revenues - Costs - Taxes
Net Income = $4,375,233 - $2,467,321 - ($4,375,233 - $2,467,321) x 34%
Net Income = $625,565.98

2. Then, we can calculate the retained earnings:

Retained Earnings = Net Income x (1 - Dividend Payout Ratio)
Retained Earnings = $625,565.98 x (1 - 60%)
Retained Earnings = $250,226.39

Therefore, the amount of retained earnings is $503,688.77 (the closest option is C).

Addition to Retained Earnings: Tangent, Inc