Question

In: Finance

8 A firm paid total cash dividends of $119 and had net income of $217 in...

8 A firm paid total cash dividends of $119 and had net income of $217 in 2008.

If it earned $328 in 2009 and maintained the same dividend payout ratio that it paid in this year, what will the firm's total dividends be?

Please round to two decimals

Expert Solution

Solution:

The formula for calculating Dividend Payout Ratio is

= Dividends Paid / Net Income

As per the information given in the question we have

Dividends paid for the year 2008 = $ 119

Net Income for the year 2008 = $ 217

Applying the above values in the formula we have :

The Dividend Payout Ratio for the year 2008 = 119 / 217

= 0.54839

= 54.839 %

Calculation of Dividend payment in year 2009 based on Dividend payout ratio of Year 2008

The formula is as follows :

= Net Income for the Year 2009 * Dividend Payout ratio of Year 2008

As per the information given in the question we have

Net Income for the Year 2009 = $ 328

Dividend Payout ratio of Year 2008 = 54.839 %

Applying the above values in the formula we have :

= $ 328 * 54.839 %

= $ 179.8719

= $ 179. 87 ( When rounded off to two decimal places )

Thus the Dividend payment in year 2009 based on Dividend payout ratio of Year 2008 = $ 179.87

jeff jeffy answered 11 months ago

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