Question

Last year, Benton Inc. had net income of $3.5 million and paid out $700,000 in cash dividends. If income this year is $4.1 million and the dividend payout ratio is held constant, how much will be paid in dividends?

Answer 1

Answer:

Dividend paid would amount to $820,000

Explanation:

The dividend payout ratio is a percentage of the net income paid to shareholders in dividends.

That is;

Dividend payout ratio = dividend paid out/net income

If the ratio is held constant for both years, then

$700,000/$3,500,000 = y/$4,100,000 (where y is the amount of dividend paid this year)

y = 0.2 × $4,100,000

y = $820,000