how did he calculate the prior year payout ratio 50%
| A company paid out one-half of last year's earnings in dividends. Earnings increased by 20%, and the amount of its dividends increased by 15% in the current year. The company's dividend payout ratio for the current year was |
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Answer (D) is correct.
The prior-year dividend payout ratio was 50%. Hence, if prior-year net income was X, the total dividend payout would have been 50%X. If earnings increase by 20%, current-year income will be 120%X. If dividends increase by 15%, the total dividends paid out will be 57.5%X (115% × 50%X), and the new dividend payout ratio will be 47.9% (57.5%X ÷ 120%X). |
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Tayba Al-Mehdar
Analyst
Khobar
Saudi Arabia
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