Suppose a Firm Has a Retention Ratio of 40 Percent

question 48

Multiple Choice

Suppose a firm has a retention ratio of 40 percent and net income of $10 million. How much does it pay out in dividends?

• A) $4 million
• B) $6 million
• C) $10 million
• D) $16.67 million

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Definitions:

Depreciation

The process through which the value of assets decreases over time due to use, wear and tear, or obsolescence.

Durable Good

A type of good that does not quickly wear out and is expected to last for several years under normal usage conditions.

Gross Domestic Product

GDP stands for Gross Domestic Product and refers to the sum of the monetary or market value of all final goods and services that are produced within the confines of a nation during a given time frame.

Social Well-Being

The condition of an individual or group in terms of their mental, emotional, and physical health and their ability to interact successfully with others in society.