The Claustrophobic Solution, Inc., a residential window and door manufacturer, h
ID: 2654591 • Letter: T
Question
The Claustrophobic Solution, Inc., a residential window and door manufacturer, has the following historical record of earnings per share (EPS) from 2011 to 2007:
2011
2010
2009
2008
2007
EPS
$1.10
$1.05
$1.00
$0.95
$0.90
The company’s payout ratio has been 60% over the last five years and the last quoted price of the firm’s share of stock was $10. Flotation costs for new equity will be 7%. The company has 30,000,000 of common shares of stock outstanding and a debt-equity ratio of 0.5.
If dividends are expected to grow at the same arithmetic average growth rate of the last five years, what is the dividend payment in 2012?
2011
2010
2009
2008
2007
EPS
$1.10
$1.05
$1.00
$0.95
$0.90
Explanation / Answer
The Claustrophobic Solution, Inc., a residential window and door manufacturer, has the following historical record of earnings per share (EPS) from 2011 to 2007: 2011 2010 2009 2008 2007 EPS $1.10 $1.05 $1.00 $0.95 $0.90 The company’s payout ratio has been 60% over the last five years and the last quoted price of the firm’s share of stock was $10. Flotation costs for new equity will be 7%. The company has 30,000,000 of common shares of stock outstanding and a debt-equity ratio of 0.5. If dividends are expected to grow at the same arithmetic average growth rate of the last five years, what is the dividend payment in 2012? EPS = Retained Income/No. of shares Outstanding X Face Value per share Given the EPS as above, and the no. of shares outstanding as 30,000,000 (Face Value $ 10) 2011 2010 2009 2008 2007 Retained Income $ $ $ $ $ 3300000 3150000 3000000 2850000 2700000 Dividend Payout is 60% of Retained Income Hence, 2011 2010 2009 2008 2007 Dividend Payout $ $ $ $ $ 1980000 1890000 1800000 1710000 1620000 Assuming the trend in the dividend payout is retained, an amount of $ 2,070,000 will be paid in 2012. Flotation Costs and debt equity ratio is not to be used while calculating the dividends on equity stock.