Question

Ferman Corporation had net income of $160,000 and paid dividends of $50,000 to common stockholders and $20,000 to preferred stockholders in 2014. Ferman Corporation's common stockholders' equity at the beginning and end of 2014 was $870,000 and $1,130,000, respectively. Ferman Corporation's payout ratio for 2014 wasa. 5.0%.b. 43.8%.c. 31.3%.d. 12.5%.

Answer 1

Answer: Option(b) is correct.

Step-by-step explanation:

Given that,

Net income = $160,000

paid dividends to common stockholders = $50,000

paid dividends to preferred stockholders = $20,000

Total Dividends = paid dividends to common stockholders + paid dividends to preferred stockholders

= $50,000 + $20,000

= $70,000

Therefore,

`Payout\ ratio=(Total\ Dividend)/(Net\ Income)`

`Payout\ ratio=(70,000)/(160,000)`

= 0.4375

= 43.8%