Question

The balance sheet and income statement for Rocket Corporation are as follows: Balance Sheet as of December 31, 2019 ASSETS LIABILITIES & EQUITY Cash & marketable sec. $3,500 Accounts payable $38,000 Accounts Receivable 47,000 Taxes payable 9,000 Inventory 13,000 Short-term borrowings 20,500 Total current assets $63,500 Total current liabilities $67,500 Net P,P & E $452,000 Long-term debt $200,000 Total liabilities $267,500 Common stock at par $80,000 Additional paid-in capital $45,000 Retained earnings $123,000 TOTAL ASSETS $515,500 TOTAL LIABILITIES & EQUITY $515,500 Income Statement for the year ending December 31, 2019 Sales $750,000 Cost of goods sold 540,000 Gross profit $210,000 S, G & A 115,000 Operating profit $95,000 Interest expense 14,994 Earnings b4 tax $80,006 Income tax 20,002 Net Income $60,005 Rocketʹs stock was selling for $7 a share at the end of 2019, and there were 95 thousand shares outstanding. Rocket paid dividends of $0.5 a share in 2019 . Calculate Rocketʹs 2019 dividend payout ratio.

A) 50.0%
B) 19.2%
C) 79.2%
D) 7.1%

Answer 1

The dividend payout ratio is 79.2%.

Step-by-step explanation:

The dividend payout ratio is calculated by dividing the dividends paid by the net income. In this case, Rocket Corporation paid dividends of $0.5 per share and had a net income of $60,005. So, the total dividends paid can be calculated as 0.5 * 95,000 = $47,500. The dividend payout ratio is therefore 47,500 / 60,005 = 0.7917 or 79.2%. Therefore, the correct answer is C) 79.2%.