Question

Starbuck Corporation had a net income of $250,000 and paid dividends to common stockholders of $50,000 in Year 1. The weighted average number of shares outstanding in Year 1 was 50,000 shares. Starbuck Corporation's common stock is selling for $40 per share on the New York Stock Exchange. Starbuck's dividend payout ratio for Year 1 is _____. (Round your answer to three decimal places.)

Answer 1

Answer:

20%

Explanation:

The payout ratio can either computed as dividend per share divided by earnings per share or total dividends paid to common stock holders divided by net income for the year.

using the latter formula,the payout ratio of Starbuck Corporation is computed thus:

dividend payout ratio=dividends paid/net income

dividends paid to common stock holders were $50,000

net income for Starbuck for the year was $250,000

dividend payout ratio=$50,000/$250,000=20%