Fundamentals of Financial Management, Concise Edition
9th Edition
ISBN: 9781337087544
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 2016 income statement (shown in thousands of dollars).
| Sales | $15,300 |
| Operating costs including |
12,240 |
| EBIT | $ 3,060 |
| Interest | 330 |
| EBT | $ 2,730 |
| Taxes (40%) | 1,092 |
| Net income | $ 1,638 |
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 2015. If Brooks wants to maintain this payout ratio in 2016, what will be its per-share dividend in 2016?
- 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 2015. Assume that the number of shares outstanding has remained constant. What was the company’s per-share dividend in 2015?
- 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?
- 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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The following table gives abbreviated balance sheets and income statements for Walmart. At the end of fiscal 2017, Walmart had 3,060 million shares outstanding with a share price of $146. The company's weighted-average cost of capital was about 5%. Assume a tax rate of 35%.
Balance Sheet (figures in $ millions)
End of Year
Start of Year
Assets
Current assets:
Cash and marketable securities
$
6,956
$
7,067
Accounts receivable
5,814
6,035
Inventories
43,983
43,246
Other current assets
3,711
2,141
Total current assets
$
60,464
$
58,489
Fixed assets:
Net fixed assets
$
115,018
$
114,378
Other long-term assets
30,240
27,158
Total assets
$
205,722
$
200,025
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable
$
46,292
$
41,633
Other current liabilities
32,629
25,695
Total current liabilities
$
78,921
$
67,328
Long-term debt
37,025…
A company reported the following data for the year ending 2018:
Description
Amount
Sales
$400,000
Sales discount
$16,000
Sales returns and allowances
$13,000
Cost of goods sold
$117,000
Operating expense
$153,000
Income tax expense
$23,750
There are 25,000 shares outstanding throughout the year. What is the earnings per share?
$2.08 per share
$4.04 per share
$3.09 per share
$3.01 per share
Triumph's has 40,000 common shares outstanding during 2018.
Requirement 1. Compute earnings per share (EPS) for 2018 for Triumph's. Round to the nearest cent.
Requirement 2. Compute Triumph's Companies' price/earnings ratio for
2018. The market price per share of Triumph's stock is $15.00.
Triumph's Companies
Income Statement
Years Ended May 31, 2018 and 2017
2018 2017
Net Sales Revenue $42,400
$41,100
Cost of Goods Sold 22,500
29,300
Interest Expense 400
320
All Other Expenses 6,700
7,800
Net Income $12,800
$3,680
Triumph's Companies
Balance Sheet
May 31, 2018 and 2017
Assets Liabilities
2018 2017 2018…
Chapter 14 Solutions
Fundamentals of Financial Management, Concise Edition
Ch. 14 - Prob. 1QCh. 14 - The cost of retained earnings is less than the...Ch. 14 - Would it ever be rational for a firm to borrow...Ch. 14 - Modigliani and Miller (MM), on the one hand, and...Ch. 14 - How would each of the following changes tend to...Ch. 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 - Indicate whether the following statements are true...
Ch. 14 - Prob. 11QCh. 14 - RESIDUAL DIVIDEND MODEL Altamonte...Ch. 14 - Prob. 2PCh. 14 - STOCK REPURCHASES Gamma Industries has net income...Ch. 14 - STOCK SPLIT After a 5-for-1 stock split, Tyler...Ch. 14 - Prob. 5PCh. 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 2015, Keenan...Ch. 14 - RESIDUAL DIVIDEND MODEL Buena Terra Corporation is...Ch. 14 - DIVIDEND POLICY Southeastern Steel Company (SSC)...Ch. 14 - Prob. 1DQCh. 14 - Prob. 2DQCh. 14 - Prob. 3DQCh. 14 - Prob. 4DQCh. 14 - Prob. 5DQCh. 14 - Prob. 6DQ
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