Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN: 9781337902571
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Textbook Question
Chapter 14, Problem 7P
DIVIDENDS Brooks Sporting Inc. is prepared to report the following 2019 income statement (shown in thousands of dollars).
Prior to reporting this income statement, the company wants to determine its annual dividend. The company has 320,000 shares of common stock outstanding, and its stock trades at $37 per share.
- a. The company had a 25% dividend payout ratio in 2018. If Brooks wants to maintain this payout ratio in 2019, what will be its per-share dividend in 2019?
- b. If the company maintains this 25% payout ratio, what will be the current dividend yield on the company’s stock?
- c. The company reported net income of $1.35 million in 2018. Assume that the number of shares outstanding has remained constant. What was the company’s per-share dividend in 2018?
- d. As an alternative to maintaining the same dividend payout ratio. Brooks is considering maintaining the same per-share dividend in 2019 that it paid in 2018. If it chooses this policy, what will be the company’s dividend payout ratio in 2019?
- 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? Explain.
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Free Cash Flow
Use the financial statements shown here for Lan & Chen Technologies. The federal-plus-state tax rate is 25%.
Lan & Chen Technologies: Income Statements for Year Ending December 31
(Thousands of Dollars)
2023
2022
Sales
$960,000
$900,000
Expenses excluding depreciation and amortization
820,000
774,000
EBITDA
$140,000
$126,000
Depreciation and amortization
33,000
31,500
EBIT
$107,000
$94,500
Interest Expense
10,000
8,900
EBT
$97,000
$85,600
Taxes (25%)
24,250
21,400
Net income
$72,750
$64,200
Common dividends
$43,000
$41,230
Addition to retained earnings
$29,750
$22,970
Lan & Chen Technologies: December 31 Balance Sheets
(Thousands of Dollars)
Assets
2023
2022
Cash and cash equivalents
$48,250
$45,000
Short-term investments
3,200
3,600
Accounts Receivable
280,500
270,000
Inventories
141,000
135,000
Total current assets
$472,950
$453,600
Net fixed assets
360,750
315,000
Total assets…
The Talley Corporation had taxable operating income of $365,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $50,000, (2) dividends received of $25,000, and (3) dividends paid of $35,000. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax exempt.
What is the firm’s taxable income?
What is the tax expense?
What is the after-tax income?
A real estate broker insures an office building for $500,000 under a Building and Personal Property Coverage Form with a Causes of Loss-Broad Form attached. If smoke from a nearby industrial factory enters the office building and causes $10,000 in damage to the interior, the policy will pay a MAXIMUM of which of the following amounts?
a. $0
b. $1,000
c. $5,000
d. $10,000
Chapter 14 Solutions
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Ch. 14 - Prob. 1QCh. 14 - Prob. 2QCh. 14 - Would it ever be rational for a firm to borrow...Ch. 14 - Modigliani and Miller (MM), on the one hand, and...Ch. 14 - Prob. 5QCh. 14 - One position expressed in the financial literature...Ch. 14 - Prob. 7QCh. 14 - What is the difference between a stock dividend...Ch. 14 - Most firms like to have their stock selling at a...Ch. 14 - Prob. 10Q
Ch. 14 - Prob. 11QCh. 14 - RESIDUAL DIVIDEND MODEL Altamonte...Ch. 14 - Prob. 2PCh. 14 - STOCK REPURCHASES Gamma Industries has net income...Ch. 14 - Prob. 4PCh. 14 - EXTERNAL EQUITY FINANCING Coastal Carolina Heating...Ch. 14 - RESIDUAL DIVIDEND MODEL Walsh Company is...Ch. 14 - DIVIDENDS Brooks Sporting Inc. is prepared to...Ch. 14 - Prob. 8PCh. 14 - ALTERNATIVE DIVIDEND POLICIES In 2018, Keenan...Ch. 14 - Prob. 10SPCh. 14 - Prob. 11ICCh. 14 - Prob. 1TCLCh. 14 - Prob. 2TCLCh. 14 - Prob. 3TCLCh. 14 - Investors are more concerned with future dividends...Ch. 14 - Prob. 5TCL
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