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July 03 , 2008

Analysis Retention Ratio


"a)   A for-profit hospital earns a gross profit of $10 million. Twenty-five percent (25%) of this gross profit is retained earnings and another 30% is charged to corporate tax. If there are two 25% preferred shareholders and ten 10% ordinary shareholders, how much will each shareholder earn as dividend?
b)   If each preferred shareholder pays an income tax of 33.33% on their dividend income, what will be their net dividend earning?
c)   What is the retention ratio?

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