Suppose a Firm Has a Retention Ratio of 35 Percent

question 91

Multiple Choice

Suppose a firm has a retention ratio of 35 percent and net income of $2 million. How much does it pay out in dividends?

• A) $700,000
• B) $1.3 million
• C) $2 million
• D) $3.07 million

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Definitions:

Cash Flow Operations

The net amount of cash and cash-equivalents being transferred into and out of a business, specifically from its operational activities.

Tax Shield Approach

A method used in finance to reduce taxable income by properly deducting expenses like mortgage interest, which decreases overall taxes owed.

Operating Cash Flows

The amount of cash generated by a company's regular business operations.