Suppose a Firm Pays Total Dividends of $750,000 Out of Net

question 26

Multiple Choice

Suppose a firm pays total dividends of $750,000 out of net income of $2 million. What would the firm's retention ratio be?

• A) 37.50 percent
• B) 47.50 percent
• C) 25.50 percent
• D) 62.50 percent

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Definitions:

Ending Inventory

The estimation of goods on hand for sale at the termination of an accounting period, figured by the formula: starting inventory plus acquisitions minus the cost of goods sold.

Inventory Turnover Ratio

A measure of how rapidly inventory is sold or used in a given period, calculated by dividing cost of goods sold by average inventory.

Days' Sales

Often refers to days' sales outstanding (DSO), which measures the average number of days it takes a company to collect payment after a sale has been made.

Inventory

Goods and materials that a business holds for the ultimate goal of resale or processing.