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**

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