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17 July, 02:47

Alpha Star's net income is $300 on $2,000 of sales. The company has $5,000 in assets and equity of $3,000. The firm paid out $125 in cash dividends. What is the dividend payout ratio?

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  1. 17 July, 03:26
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    Dividend payout ratio = 41.67%

    Explanation:

    Dividend payout ratio is the amount that has to be paid to a company's shareholders relative to its net income.

    We know,

    Dividend payout ratio = Cash dividend : (Net Income + Non cash expenses - Non cash sales)

    Given,

    Net Income = $300

    Cash dividend = $125

    The company does not have any non-cash expenses or sales. Therefore,

    Dividend payout ratio = $125 : $300

    Dividend payout ratio = 0.4167

    or Dividend payout ratio = 41.67%

    Therefore, the company pays almost 42% of net income to its shareholders.
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