Question

Here are data on two stocks, both of which have discount rates of 8%: Stock A Stock B Return on equity 8 % 5 % Earnings per share $ 2.60 $ 1.80 Dividends per share $ 1.30 $ 1.30 What are the dividend payout ratios for each firm? (Enter your answers as a percent rounded to 2 decimal places.)

Answer 1

Answer:

The dividend payout ratios for each firm are 50%  and 72.22%

Explanation:

Dividend Payout Ratio Is the measure of the percantage of net income that is distributed to the shareholders in the form of dividends.  

Dividend Payout Ratio = Dividend paid/ Net Income

Stock A:

Dividend Payout Ratio = Dividend paid/ Net Income

                                      = 1.3/2.60  

                                       = 50%

Stock B:

Dividend Payout Ratio = Dividend paid/ Net Income

                                      = 1.3/1.8    

                                      = 72.22%

Therefore, The dividend payout ratios for each firm are 50%  and 72.22%