Blue Company has 12,000,000 in sales. COGS are 40% of sales. Operating costs are
ID: 2773072 • Letter: B
Question
Blue Company has 12,000,000 in sales. COGS are 40% of sales. Operating costs are $1,200,000plus depreciation expense of $80,000 and interest expense $80,000. Tax rate is 40%. They have 1,000,000 shares of stock outstanding.
a What is their net income?
b If they retained 80% and paid 20% in dividends, what is their dividend payout?
c If they had EPS of $2.40 last year, how does this year’s EPS compare to last year’s?
Stock F’s last dividend was $1.60 per share and is expected to grow at a rate of 4%.
a Using constant growth valuation formula, what is the expected price of the stock if my required return is 12%?
b If the stock is selling at $23.50 should I purchase the stock?
Explanation / Answer
Calculation of Net Income:-
Earning per share = 5840000/1000000= 5.844
Dividend per share 5.844 *20%=1.1688
Dividend payout ratio= Dividend per share/ Earning per share
= 1.1688/5.844=20
Particular Amount Particular Amount To COGS 4800000 By Sale 12000000 To Operating Cost 1200000 To Depreciation 80000 To Interest Expenses 80000 To Net Income 5840000