Bowles Inc. is prepared to report the following income statement (shown in thousands of dollars) for the year 2019:Sales $15,200Operating costs including depreciation 11,900EBIT $ 3,300Interest expense 300EBT $ 3,000Taxes 40% 1,200Net income $ 1,800 =====Prior to reporting this income statement, the company wants to determine its annual dividend. The company has 500,000 shares of stock outstanding and its stock trades at $48 per share.The company had a 40% dividend payout ratio in 2019. If Bowles wants to maintain this payout ratio in 2020, what will be the current dividend yield on the company’s stock?If the company maintains this 40% payout ratio, what will be the current dividend yield on the company’s stock?The company reported net income of $1.5 million in 2019. Assume that the number of shares outstanding has remained constant. What was the company’s per-share dividend in 2019?As an alternative to maintaining the same dividend payout ratio. Bowles is considering maintaining the same per-share dividend in 2020 that it paid in 2019. If it chooses this policy, what will be the company’s dividend payout ratio in 2020?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 transaction 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?

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Answered: The company had a 40% dividend payout…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Bowles Inc. is prepared to report the following income statement (shown in thousands

of dollars) for the year 2019:

Sales $15,200

Operating costs including depreciation 11,900

EBIT $ 3,300

Interest expense 300

EBT $ 3,000

Taxes 40% 1,200

Net income $ 1,800

=====

Prior to reporting this income statement, the company wants to determine its annual

dividend. The company has 500,000 shares of stock outstanding and its stock trades at $48 per share.

The company had a 40% dividend payout ratio in 2019. If Bowles wants to maintain this payout ratio in 2020, what will be the current dividend yield on the company’s stock?
If the company maintains this 40% payout ratio, what will be the current dividend yield on the company’s stock?
The company reported net income of $1.5 million in 2019. Assume that the number of shares outstanding has remained constant. What was the company’s per-share dividend in 2019?
As an alternative to maintaining the same dividend payout ratio. Bowles is considering maintaining the same per-share dividend in 2020 that it paid in 2019. If it chooses this policy, what will be the company’s dividend payout ratio in 2020?
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 transaction 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?

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