Question

Rocket Inc. recently reported $210,000 of sales, $145,500 of operating costs other than depreciation, and $20,200 of depreciation. The company had $34,500 of outstanding bonds that carry a 6. 5% interest rate, and its federal-plus-state income tax rate was 25%. Number of shares outstanding is 5,000.

How much was the firm's net income? The firm uses the same depreciation expense for tax and stockholder reporting purposes. (Round your intermediate and final answers to two decimal places.)

If the company’s retention ratio is 35%, how much dividend each share received for the year?

Please show work.

Answer 1

1)

Interest = 6.5% o 34,500 = 2,242.5

Net income = (Sales - operating costs - depreciation - interest)(1 - tax)

Net income = (210,000 - 145,500 - 20,200 - 2,242.5)(1 - 0.25)

Net income = $31,543.13

2)

Dividend payout ratio = 1 - retention ratio

Dividend payout ratio = 1 - 0.35

Dividend payout ratio = 0.65 of 65%

Total dividends paid = 0.65 * 31,543.13

Total dividends paid = 20,503.0345

dividend each share received = 20,503.0345 / 5000

dividend each share received = 4.10