Naples Inc. has provided the following data concerning its stockholders’ equity

Question

Naples Inc. has provided the following data concerning its stockholders’ equity accounts:

Net income for year 2 was $30,400. Dividends on common stock during year 2 totaled $6,400. The market price of common stock at the end of year 2 was $3.08 per share.

The company’s dividend payout ratio for year 2 is closest to

A. 1.6%

B. 21.1%

C. 2.6%

D. 14.7%

Year 2 Year 1 Stockholders' equity Common stock, $5 par vae Additional paid-in capital-common stock. Retained eamings $400,000 $400,000 60,000 60,000 654,000 630,000 S1,114,000 $1,090,000 Total stockholders' equity

Explanation / Answer

Step 1:- Calculating Number of Common Share's Outstanding.

No. of common share's outstanding = Common Stock ÷ Par Value

= $400000 ÷ $5 / Share

= 80000 Share's

Step 2:- Calculating Earnings Per Share.

Earnings / Share = Net Income ÷ Average no. of common share's outstanding

= $30400 ÷ 80000

= $0.38 / Share

Step 3 :- Calculating Dividends Per Share.

Dividends / Share = Common Dividends ÷ Common Share's

= $6400 ÷ 80000

= $0.08 / Share

Step 4:- Calculating Dividend Payout Ratio.

Dividend Payout Ratio = Dividends / Share ÷ Earnings / Share

= $ 0.08 ÷ $0.38

=  21.1%

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