Question

1. Nova Scotia Corp has just completed its year-end. The company reported net income of $5,500,000. Senior management has decided to pay dividends of $1,600,000. What is the firm's retention ratio?

2.At the board of directors meeting of Canada Co. on June 5, it is reported that the EPS of the firm is expected to be $2.25 per share. The board of directors declares a dividend of $1.00 per share on June 5 (Wednesday), with a holder-of-record date of July 10 (Thursday) and a payment date of July 18 (Friday). At the close of trading, you sell your 15,000 shares on July 8 (Tuesday). How much will you receive in dividends on July 18?

Answer 1

1.

Net income = $5,500,000

Dividend paid = $1,600,000

Dividend payout ratio = Dividend paid/Net income

= 1,600,000/5,500,000

= 29.09%

Retention ratio = 100 - Dividend payout ratio

= 70.01%

2.

Record date of dividend = July 10

Date of sale of shares = July 8

Since shares were sold before the dividend record date, hence no dividend will be received on July 18.

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