Question

Lucas, Inc. earned $14 million last year and retained $8 million. Lucas has 9 million shares outstanding, and the current price of Lucas shares is $35 per share. What is the payout ratio? (Round your answer to the nearest whole percent.)

Answer 1

Dividend Per Share = (Earnings - Retained Amount ) / Shares outstanding

= ($ 14 Million - $ 8 Million) / 9 Million

= $ 6 Million / 9 Million Shares

= $ 0.666667 Per Share

Earnings Per Share = Total Earnings/ Shares outstanding

= $ 14 Million / 9 Million Shares

= $ 1.55555556 Per Share

Payout Ratio = Dividend Per Share / Earnings Per Share

= $ 0.666667 Per Share /$ 1.55555556 Per Share  

= 42.85714307%

= 42.86%

= 43%

Hence the correct answer is 43%