A company has forecasted net income to be $600,000. Net income was $400,000 in t
ID: 2783897 • Letter: A
Question
A company has forecasted net income to be $600,000. Net income was $400,000 in the prior year, when they also paid dividends of $125,000. What are forecasted dividends if the company wants to keep the payout ratio constant?
Using the tax table provided in Figure 10.3, determine the average and marginal tax rates for a company that earned $16.9 million in taxable income.
Using the information below, compute the net income of the company:
Sales revenue
$150,000
Operating expenses
25,000
Tax expense
3,500
Unearned revenue
5,000
Cost of goods sold
90,000
Interest expense
2,500
Sales revenue
$150,000
Operating expenses
25,000
Tax expense
3,500
Unearned revenue
5,000
Cost of goods sold
90,000
Interest expense
2,500
Explanation / Answer
1.) Net Income =$400,000
Dividends Paid = $125,000
Payout ratio = Dividend Paid/Net Income =125,000/400,000 =0.3125 or 31.25%
To maintain the same ratio,
Dividend against $600,000 Net Income =$600,000 x 0.3125 =$187,500
2.) Unearned revenue is an advance received against a future service or product delivery. Hence, the revenue will be realised only when the product or service gets delivered.
Sales $150,000
COGS $ 90,000
Operating Expenses $25,000
EBIDTA $35,000 [150,000 - 90,000 - 25,000]
Interest $ 2,500
PBT $32,500 [35,000 - 2,500]
Taxes $ 3,500
Net Income $29,000 [32,500 - 3,500]
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