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DIVIDENDS Brooks Sporting Inc. is prepared to report the following 2018 income statement (shown in thousands of dollars). Sales $15,300 Operating costs including depreciation 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 sham. a. The company had a 25% dividend payout ratio in 2017. If Brooks wants to maintain this payout ratio in 2018, what will be its per-share dividend in 2018? 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 2017. Assume that the number of shares outstanding has remained constant. What was the company’s per-share dividend in 2017? d. As an alternative to maintaining the same dividend payout ratio, Brooks is considering maintaining the same per-share dividend in 2018 that it paid in 2017. If it chooses this policy, what will be the company’s dividend payout ratio in 2018? 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.

BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

Solutions

Chapter
Section
Chapter 15, Problem 7P
Textbook Problem

DIVIDENDS Brooks Sporting Inc. is prepared to report the following 2018 income statement (shown in thousands of dollars).

Sales $15,300
Operating costs including depreciation 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 sham.

  1. a. The company had a 25% dividend payout ratio in 2017. If Brooks wants to maintain this payout ratio in 2018, what will be its per-share dividend in 2018?
  2. b. If the company maintains this 25% payout ratio, what will be the current dividend yield on the company’s stock?
  3. c. The company reported net income of $1.35 million in 2017. Assume that the number of shares outstanding has remained constant. What was the company’s per-share dividend in 2017?
  4. d. As an alternative to maintaining the same dividend payout ratio, Brooks is considering maintaining the same per-share dividend in 2018 that it paid in 2017. If it chooses this policy, what will be the company’s dividend payout ratio in 2018?
  5. 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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Chapter 15 Solutions

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