Swank Clothiers earned $640 million last year and had a 30 percent payout ratio. How much d id the firm add to its retained earnings? Solution: Swank Clothiers Addition to retained earnings Earnings-Dividends Dividends =30%X$640.000,000 $192000,000 Addition to retained earnings = $640,000, 000-$192, 000,000 $448,00000 18-4 Springsteen Music Company earned $820 million last year and paid out 20 percent of earnings in dividends a. How much did retained earnings increase by? b. With 100 million shares outstanding and a stock price of $50, what was the dividend yield?(Hint: first compute dividends per share. Solution: Springsteen Music Company a. Addition to retained earnings earnings -dividends Dividends 20%X$820,000,000 Dividends $164000.000 Earnings -dividends $820.000000-$164000000 Addition to retained earnings =$656.000.000 b Dividends/shares $164.000.000/100000.000 $164 Dividend yield Dividend per share/stock price $164/$50=3,28 percent S-631 Copyright C2005 by The McGraw-Hill Companies, IncCopyright © 2005 by The McGraw-Hill Companies, Inc. S-631 18-3. Swank Clothiers earned $640 million last year and had a 30 percent payout ratio. How much did the firm add to its retained earnings? Solution: Swank Clothiers Addition to retained earnings = Earnings – Dividends Dividends = 30% x $640,000,000 = $192,000,000 Addition to retained earnings = $640,000,000 – $192,000,000 = $448,000,000 18-4. Springsteen Music Company earned $820 million last year and paid out 20 percent of earnings in dividends. a. How much did retained earnings increase by? b. With 100 million shares outstanding and a stock price of $50, what was the dividend yield? (Hint: first compute dividends per share.) Solution: Springsteen Music Company a. Addition to retained earnings = Earnings – Dividends Dividends = 20% x $820,000,000 Dividends = $164,000,000 Earnings – dividends = $820,000,000 – $164,000,000 Addition to retained earnings = $656,000,000 b. Dividends/shares = $164,000,000/100,000,000 = $1.64 Dividend yield = Dividend per share/stock price = $1.64/$50 = 3.28 percent