Spacely Sprockets Inc. sets its dividend using the target payout ratio

Spacely Sprockets Inc. sets its dividend using the target payout ratio policy. Selected financial data for Spacely is available in the table below. What is Spacely’s target payout rate?

Selected Financial Information
Spacely Sprockets Inc.
Dividend per share Year 0 $2.538
Dividend Per share Year 1 $2.546
Earnings per share Year 0 $2.25
Earnings per share Year 1 $2.41
Adjustment factor 0.10

A) 0.40
B) 0.50
C) 0.60
D) 0.70
E) 0.80

ANSWER

B