can you help me with 9 and 10 please? generated net income equai t follows the c
ID: 2784312 • Letter: C
Question
can you help me with 9 and 10 please?
generated net income equai t follows the constant payout ratio dividend policy, how much should be paid in dividends this year? 13-9 Last year, Headline News Corporation paid $600,000 in dividends and retained $360,000 of the earn- ings it generated. The company follows a constant payout ratio dividend policy. If Headline generates $1.25 millon in income this year, how much will be paid in dividends? 13-10 Rapid Auto Transport (RAT) follows a constant payout ratio dividend policy, which requires the company to pay out 30 percent of income as dividends each year. If it wants to pay $840,000 in dividends next year, how much must RAT earn?Explanation / Answer
9. Dividend payout ratio = Total dividends / Net Income of the company
Where,
Total dividend = $600,000
Net income of company = Total dividends paid + Retained Earnings
= $600,000 + $360,000 = $ 960,000
Therefore
Dividend payout ratio =$600,000 / $ 960,000 = 0.625 or 62.50%
As the company follows a constant dividend payout policy so for this year also, the Dividend payout ratio will be 0.625
And we know that net income for this year is $1.25 million
Therefore
Dividend payout ratio = Total dividends / Net Income of the company
Or Total dividends = Dividend payout ratio * Net Income of the company
= 0.625 *$1.25 million = $781,250
Therefore $781,250 dividend will be paid this year
10. Dividend payout ratio = Total dividends / Net Income of the company
Or Net Income of the company = Total dividends/ Dividend payout ratio
Where,
Dividend payout ratio = 30% or 0.3
Total dividends = $840,000
Therefore,
Net Income of the company = $840,000/ 0.3 = $2,800,000
Net income of the company = Total dividends paid + Retained Earnings
$2,800,000 =$840,000 + Retained Earnings
Or Retained Earnings = $2,800,000 - $840,000 = $1,960,000
Therefore Retained Earnings of the company for next year is $1,960,000.
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