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The following information relates to AAA Company : Book value per share $30; Dividend yield ratio...

The following information relates to AAA Company : Book value per share $30; Dividend yield ratio = 10%; price-earnings ratio = 2 ; dividends per share = $5; Par value per share = $12. What is AAA Company’s dividend payout ratio?

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Answer #1

Dividend payout ratio = Dividend per share / Earning per share x 100

=> Dividend payout ratio = $5 / $25 x 100

=> Dividend payout ratio = 20%

Working Notes:

1. Calculation of market price per share

Dividend yield ratio = Dividend per share / Market price per share x 100

=> 10 = $5 / Market price per share x 100

=> Market price per share = $50

Earning per share = Market price per share / Price-earnings ratio

=> Earning per share = $50 / 2 = $25

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