The Claustrophobic Solution, Inc., a residential window and door manufacturer, h
ID: 2766152 • 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 $12. Flotation costs for new equity will be 6%. The company has 32,000,000 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
yearly eps dps growth rate 2007 0.90 0.54 2008 0.95 0.57 0.056 2009 1.00 0.60 0.053 2010 1.05 0.63 0.050 2011 1.10 0.66 0.048 0.206 arithmetic average growth rate = 0.206/4 = 0.0515 = 5.15% dividend for 2012 = 0.66*1.0515 = $0.69