Question

A firm has sales of $529,000 for the year. The profit margin is 3.4 percent and the retention ratio is 60 percent. What is the common-size percentage for the dividends paid?

Answer 1

Explanation: 1. Calculate the net profit: Multiply the sales by the profit margin.

Net profit = $529,000 * 0.034 (3.4%)

2. Calculate the retained earnings: Multiply the net profit by the retention ratio.

Retained earnings = Net profit * 0.60 (60%)

3. Calculate the dividends paid: Subtract the retained earnings from the net profit.

Dividends paid = Net profit - Retained earnings

4. Calculate the common-size percentage: Divide the dividends paid by the sales and multiply by 100.

Common-size percentage = (Dividends paid / Sales) * 100

By following these steps, you can calculate the common-size percentage for the dividends paid based on the given information.