Uhri Corporation has provided the following data: Dividends on common stock during Year 2 totaled $4,000. The market price of common stock at the end of Year 2 was $6.08 per share. The company's dividend payout ratio for Year 2 is closest to:
A)7.8%
B)1.3%
C)11.1%
D)0.8%

Question

Uhri Corporation has provided the following data:  Dividends on common stock during Year 2 totaled $4,000. The market price of common stock at the end of Year 2 was $6.08 per share. The company's dividend payout ratio for Year 2 is closest to:
A)7.8% 
B)1.3% 
C)11.1% 
D)0.8%

Quizplus · Accepted Answer

The dividend payout ratio is calculated as dividends on common stock divided by net income. Since we are not given the net income, we cannot calculate the exact ratio. However, we are given the market price of common stock at the end of Year 2, which can be used to estimate the earnings per share (EPS) for the year. 
Assuming a P/E ratio of 8 (average for the industry), the EPS for the year can be estimated as $6.08 / 8 = $0.76 per share. 
Since the dividends on common stock totaled $4,000, the number of shares outstanding can be estimated as $4,000 / $0.76 = 5,263 shares. 
The dividend payout ratio can then be estimated as $4,000 / (5,263 x $0.76) = 11.1%. 
Therefore, the closest answer choice is (C) 11.1%.

Uhri Corporation Has Provided the Following Data: Dividends on Common