In the last twelve months, net income was $80m and dividends paid were $16m. If the payout ratio is kept constant and next period's net income is forecast at $125m, how much would be paid out to common shareholders?

Prepare for your Financial Statement Modeling Test. Utilize flashcards and multiple choice questions with detailed explanations. Ace your exam with thorough preparation!

Multiple Choice

In the last twelve months, net income was $80m and dividends paid were $16m. If the payout ratio is kept constant and next period's net income is forecast at $125m, how much would be paid out to common shareholders?

With a constant payout ratio, dividends scale with net income. The payout ratio from the recent year is 16 divided by 80, which equals 0.20 or 20%. If next period’s net income is 125 million, dividends would be 20% of that: 0.20 × 125 = 25 million. So the payout to common shareholders would be $25 million. The other amounts would require a different payout ratio (e.g., 20 million would need a 16% payout, 16 million would need about 12.8%, and 125 million would imply paying all income).

In the last twelve months, net income was $80m and dividends paid were $16m. If the payout ratio is kept constant and next period's net income is forecast at $125m, how much would be paid out to common shareholders?

Prepare for your Financial Statement Modeling Test. Utilize flashcards and multiple choice questions with detailed explanations. Ace your exam with thorough preparation!

In the last twelve months, net income was $80m and dividends paid were $16m. If the payout ratio is kept constant and next period's net income is forecast at $125m, how much would be paid out to common shareholders?

Get the latest from Passetra