Dividends Bowles Sporting Inc. is prepared to report the following 2012 income s
ID: 2710392 • Letter: D
Question
Dividends Bowles Sporting Inc. is prepared to report the following 2012 income statement (shown in thousands of dollars). Sales Operating costs induding depreciation73 EBIT Interest EBT Taxes (40%) Net income Prior to reporting this income statement, the company wants to determine its annual dividend. The company has 510,000 shares a. The company had a 55% dividend payout ratio in 2011 . If Bowles wants to maintain this payout ratio in 2012, what wil be 10,100 7,373 $2,727 297 $2,430 972 $1,458 of stock outstanding, and its stock trades at $46 per share its per-share dvidend in 20127 Round your answer to the cent b. If the company maintains this 55% payout ratio, what wil be the current dividend yield on the company's stock? Round your answer to two decimal places c. The company reported net income of $1.3 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 altenative to maintaining the same dvidend payout ratio, Bowles is considering maintaining the same per-share dvidend in 2012 that it paid in 2011, be the company's dividend payout ratio in 2012? Round your answer to two decimal places. it chooses this polcy, what will o. Assume that the company is interested in dramaticaly expanding its operations and that this expansion will require significant amounts of capital. The company would like to avoid transactions costs involved in issuing new equity, Given this scenario, would it make more sense for the company to maintain a constant dividend payout ratio or to maintain the same per-share dividend t. Since the company would like to avoid transactions costs involved in issuing new equity, it would be best for the firm to maintain the same per-share dividend II. Since the company would ike to avoid transactions costs involved in issuing new equity, it would be best for the firm to maintain a constant dividend payout ratio. 9 309Explanation / Answer
a. For a 55% dividend payout, the dividend amount will be $ 1,458,000 X 55% = 801900 Since the no of shares are 510,000 as shown, the per share dividend will be 1.57 b. Dividend yield = Dividend expressed as a % of the current share price Hence, the dividend yield here is 1.57 / 46 = 3.41% c. For a 55% dividend payout in 2011 , the dividend amount will be $ 1,300,000 X 55% = 715000 Since the no of shares are 510,000 as shown, the per share dividend will be 1.4 d. Considering the per share dividend in 2011 carried forward to 2012, the total dividend paid will be 510,000 X 1.40 = 714000 $ Considering this dividend payout against the net profit, the payout % will be 49% e. In order to avoid costs of capital in issuing fresh equity, the logical solution would be to maintain the per-share dividend as compared to the previous year.