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BDJ, Inc. has 31,000 shares of stock outstanding with a market price of $15 per share. If net...

Question:

BDJ, Inc. has {eq}31,000 {/eq} shares of stock outstanding with a market price of {eq}\$15 {/eq} per share. If net income for the year is {eq}\$155,000 {/eq} and the retention ratio is {eq}75 \% {/eq}, what is the dividend per share on BDJ Inc.'s stock?

Dividend Payout Ratio:

The dividend is paid as per the dividend payout ratio applied to the net income earned during the period. It is the ratio at which dividends are calculated and paid to the shareholders. To determine the ratio we need to divide the annual dividends (the difference between net income and retained earnings) with the net income.

Answer and Explanation:


Answer:

BDJ, Inc's stock's dividend per share is $1.25.

Explanation:

BDJ, Inc. has shared the following data:

  • Number of shares = 31,000 shares
  • Market price per share = $15
  • Net income for the year = $155,000
  • Retention ratio = 75%

Computation:

  • Dividend per share = (Net income * (1 - Retention ratio)) / Number of shares
  • Dividend per share = ($155,000 * (1 - 0.75)) / 31,000 shares
  • Dividend per share = $38,750 / 31,000 shares
  • Dividend per share = $1.25

Learn more about this topic:

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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
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