Question

# Redding Industrial Supply had common stock of \$6,800 and retained earnings of \$4,925 at the beginning...

1. Redding Industrial Supply had common stock of \$6,800 and retained earnings of \$4,925 at the beginning of the year. At the end of the year, the common stock balance is \$7,000 and the retained earnings account balance is \$5,498. The net income for the year is \$938. What is the retention ratio?

1. You currently have \$7,200 in your investment account. You can earn an average rate of return of 11.7 percent per year. How long will you have to wait until your account is worth \$50,000?
1. You just won a prize and will receive \$5,000 today plus \$5,000 one year from now. What is this prize worth to you today if you can earn 9 percent annually on your investments?

Retained earnings at the beginning of the period = \$ 4,925

Net Income = \$ 938

Retained earnings before any dividend paid = \$ 4,925 + \$ 938

= \$ 5,863

Total amount paid in dividend =

Retained earnings before any dividend paid – retained earnings for the end of the period

= \$ 5,863 - \$ 5,498 = \$ 365

Dividend payout ratio = Dividend paid/Net Income

= \$ 365/\$ 938

= 0.389126

Retention ratio = 1 - Dividend payout ratio

= 1 - 0.389126

= 0.610874 or 61.09 %

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