preferred stock common stock bonds 2 Calculate the dividend

Calculate the dividend payout ratio, given the following: common shares outstanding 145 million net income for the year 316 million dividends for the year revenues for the year $60 million $1,450 million

Solution

1.

Company use three type of capital in its capital sructure, Common stock, Preferred stock and Bond (debt). on Bond (debt) comapny is obliged to pay interest at specified rate at regular interval. On preferred stock comapny has to pay regular dividend at specified rate.

Common Stockholder is considered as owner of comapny and comapny pays dividend to common shareholder. but company is not obliged to pay dividend to common shareholder.

So, Company pays interest on debt capital.

Option (C) is correct answer.

2.

Net Income for year = $316 million

Dividend for year = $60 million.

payout ratio = Dividend for year / Net Income for year

= $60 / $316

= 18.99%

Payout ratio is 18.99%,