Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
D and E subparts please
Transcribed Image Text:Brooks Sporting Inc. is prepared to report the following 2016 income statement (shown in thousands of dollars).
$19800
14850
$4950
330
Sales
Operating costs including depreciation
EBIT
Interest
EBT
Taxes (40%)
Net income
$4620
1848
$2772
Prior to reporting this income statement, the company wants to determine its annual dividend. The company has 530000 shares of stock outstanding, and
its common stock trades at $47 per share. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the
required analysis to answer the questions below.
X
Open spreadsheet
a. The company had a 40% dividend payout ratio in 2015. If Brooks wants to maintain this payout ratio in 2016, what will be its per-share dividend in
2016? Round your answer to the nearest cent.
b. If the company maintains this 40% payout ratio, what will be the current dividend yield on the company's stock? Round your answer to two decimal
places.
%
c. The company reported net income of $2.45 million in 2015. Assume that the number of shares outstanding has remained constant. What was the
company's per-share dividend in 2015? Round your answer to the nearest cent.
Transcribed Image Text:d. As an alternative to maintaining the same dividend payout ratio, Brooks is considering maintaining the same per-share dividend in 2016 that it paid
in 2015. If it chooses this policy, what will be the company's dividend payout ratio in 2016? Round your answer to two decimal places.
%
e. Assume that the company is interested in dramatically 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?
I. 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 like to avoid transactions costs involved in issuing new equity, it would be best for the firm to maintain a constant
dividend payout ratio.
î
Expert Solution
Step 1
You have asked help specifically w.r.t part (D) and (E), hence the solution focuses on these two sub parts only.
Given the select and abridged financial statements we have to find the dividend payout ratio, followed by a multiple choice question.
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