A firm had net income of $1,000,000 during the year. If the firm paid a $2.50 per share dividendand there are 300,000 shares outstanding, what is the firm's retention ratio?
A) 25%
B) 50%
C) 75%
D) cannot be determined with the information provided

Question

Quizplus · Accepted Answer

The retention ratio is calculated as (Net income - Dividends) / Net income. In this case, the net income is $1,000,000 and the dividends are $2.50 per share * 300,000 shares = $750,000. Therefore, the retention ratio is ($1,000,000 - $750,000) / $1,000,000 = 25%.

A Firm Had Net Income of $1,000,000 During the Year