Question

Part A: Below are some of the components for Prufrock Corp. income statement for the year ending December 31st, 2016. Use the values to fill in the income statement and calculate the net income. All values are given in millions of dollars and there may be more lines provided than needed. (6 points)

 Sales = $70,000  Tax Rate = 34%  Depreciation = $16,000  Interest Paid = $450  Cost of Goods Sold = $35,000

Part B: Prufrock Corp. has 4,000 million shares outstanding. If they do not reinvest any of their earnings what will be the dividend per share paid out this year? (3 points)

Part C: Assume that the dividend from Part B will be paid out one year from today. After the initial dividend from part B is paid, the dividend is expected to grow at a rate of 4% per year. Investors require a 10% return on their investment. What is the current share price? (7 points)

Answer 1

Part A
Sale	70,000
Cost of goods sold	(35,000)
Operating Income	35,000
Less depreciation	(16,000)
Income before Interest & Tax	19,000
Less interest	(450)
Income before Tax	18,550
Tax @ 34%	(6,307)
Net Income after tax	12,243
Part B
Net income after tax	12,243
Add Depreciation	16,000
Total Cash Profit	28,243
No of shares	4,000
Dividend per share	=28243/4000
	7.06
Part B
Share price	=Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
Share price	=7.06/(10%-4%)
Share price	117.67