Question

The Cookie Shoppe expects sales of $437,500 next year. The profit margin is 4.8 percent and the firm has a 30 percent dividend payout ratio. What is the projected increase in retained earnings?a. $16,231
b. $17,500
c. $18,300
d. $20,600
e. $21,000

Answer 1

Answer:

Projected Increase in Retained Earnings = $16231.25

so correct option is a. $16231

Explanation:

given data

sales = $437,500

profit margin = 4.8 percent

dividend payout ratio = 30 %

to find out

projected increase in retained earnings

solution

we get here first Expected Profit that is express as

expected Profit = Sales × Profit Margin   .......................1

expected Profit = 437500 × 5.3%

expected Profit = $23187.50

and Dividends is here as

Dividends = Expected Profit × Dividend Payout Ratio   .................2

Dividends = 23187.50  × 30%

Dividends = $6956.25

Projected Increase in Retained Earnings will be

Projected Increase in Retained Earnings = expected Profit - Dividends   ........3

Projected Increase in Retained Earnings  = $23187.50 - $6956.25

Projected Increase in Retained Earnings = $16231.25

so correct option is a. $16231