Jensen Inc. has net earnings of $24,000,000 this year and a dividend p

Jensen Inc. has net earnings of $24,000,000 this year and a dividend payout policy of 40% of earnings. If the firm follows its regular payout policy what will be the addition to retained earnings this year?

A) $9,600,000
B) $12,000,000
C) $14,400,000
D) $16,000,000

ANSWER

C
Explanation: C) Addition to R/E = Net Earnings * (1- DPO ratio) = $24,000,000 * (1-0.40 ) = $14,400,000.