Bowles Sporting Inc. is prepared to report the following 2012 income statement (
ID: 2624570 • Letter: B
Question
Bowles Sporting Inc. is prepared to report the following 2012 income statement (shown in thousands of dollars).
Prior to reporting this income statement, the company wants to determine its annual dividend. The company has 550,000 shares of stock outstanding, and its stock trades at $42 per share.
A. The company had a 60% dividend payout ratio in 2011. If Bowles wants to maintain this payout ratio in 2012, what will be its per-share dividend in 2012? Round your answer to the nearest cent.
$
B. If the company maintains this 60% payout ratio, what will be the current dividend yield on the company's stock? Round your answer to two decimal places.
%
C. The company reported net income of $2.7 million in 2011. Assume that the number of shares outstanding has remained constant. What was the company's per-share dividend in 2011? Round your answer to the nearest cent.
$
D. As an alternative to maintaining the same dividend payout ratio, Bowles is considering maintaining the same per-share dividend in 2012 that it paid in 2011. If it chooses this policy, what will be the company's dividend payout ratio in 2012? Round your answer to two decimal places.
%
Sales $18,800 Operating costs including depreciation 13,724 EBIT $5,076 Interest 396 EBT $4,680 Taxes (40%) 1,872 Net income $2,808Explanation / Answer
A) EPS = Net Income / No. of shares = $2,808,000 / 550,000
= $5.11 per share
DPS = EPS x Payout Ratio = $5.11 x 60%
= $3.07 per share (Answer)
B) Dividend yield = DPS / Market Price = $3.07 / $42
= 0.0731 or 7.31% (Answer)
C) EPS of 2011 = $2,700,000 / 550,000
= $4.91 per share
DPS of 2011 = $4.91 x 60%
= $2.95 per share (Answer)
D) In this case, DPS = $2.95 per share
Payout ratio = DPS / EPS = $2.95 / $5.11
= 0.5773 or 57.73% (Answer)
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