XYZ Company has sales of $4,800,000, COGS is 40% of sales, operating expenses ar

Question

XYZ Company has sales of $4,800,000, COGS is 40% of sales, operating expenses are $2,100,000, interest expense $20,000 and depreciation 30,000. Tax rate 40%. Construct their income statement and answer the below.

1. EBT is ___.

760,000

750,000

730,000

400,000

2. Net profit margin is __.

9.1%

12%

9.5%

9.4%

3. Dividend payout is 40%, retained earnings are___.

270,000

273,600

262,800

144,000

4. They have a 50-50 target capital structure of debt/equity. Their stated loan rate is 6% and rs = 12%, what is their WACC?

9%

15.6%

9.6%

7.8%

5. They have 100,000 shares of common stock outstanding, what is their dividend per share? Round to hundredth

1.75

.96

2.74

2.70

6. What is their EPS?

4.80

4.38

4.56

2.40

7. What is the current dividend yield if P0 is $50? Taken to tenth

8.8%

5.4%

5.5%

3.5%

8. If they were to change their dividend payout to 50%, what would their dividend per share be?

Explanation / Answer

Answer: to the first 4 parts

1. Ans: $730,000

2. Ans: 9.1%

3: Ans:$262,800

4.Ans: Post tax cost of debt = Loan rate(1-tax rate) =6%(1-0.4) = 3.6%

WACC = Cost of debt*Weght of debt+Cost of equity*Weight of equity

= 3.6%*0.5+12%*0.5 = 7.8%

Workings:

in $ Sales 4800000 Less: COGS @40% 1920000 Less: Operating Expenses 2100000 Less: Depreciation 30000 EBIT 750000 Less: Interest 20000 EBT 730000 (ans) Less: Tax @ 40%-EBT*40% 292000 Net Profit 438000 Less: Dividend paid 175200 Retained Earnings 262800 (ans)

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