Question

Brooks Sporting Inc. is prepared to report the following 2016 income statement (shown in thousands of dollars).

Sales	$13000
Operating costs including depreciation	9620
EBIT	$3380
Interest	330
EBT	$3050
Taxes (40%)	1220
Net income	$1830

Prior to reporting this income statement, the company wants to determine its annual dividend. The company has 530000 shares of stock outstanding, and its common stock trades at $47 per share. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

please help!thank you!:)

1. The company had a 30% dividend payout ratio in 2015. If Brooks wants to maintain this payout ratio in 2016, what will be its per-share dividend in 2016? Round your answer to the nearest cent.

   $  

2. If the company maintains this 30% payout ratio, what will be the current dividend yield on the company's stock? Round your answer to two decimal places.

   %

3. The company reported net income of $1.6 million in 2015. Assume that the number of shares outstanding has remained constant. What was the company's per-share dividend in 2015? Round your answer to the nearest cent.

   $  

4. 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? Round your answer to two decimal places.

   %

5. 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?

   1. Since the company would like to avoid transactions costs involved in issuing new equity, it would be best for the firm to maintain the same per-share dividend.
   2. Since the company would like to avoid transactions costs involved in issuing new equity, it would be best for the firm to maintain a constant dividend payout ratio.

Answer 1

a). Total dividend payout in 2016 = dividend payout ratio*net income = 30%*1,830,000 = 549,000

Dividend per share in 2016 = total dividend amount/shares outstanding = 549,000/530,000 = $1.04 per share

b). Current dividend yield = dividend per share/share price = 1.04/47 = 2.20%

c). Per share dividend in 2015 = (dividend payout ratio*net income)/number of shares = (30%*1,600,000)/530,000 = $0.91 per share

d). If it pays $0.91 per share dividend in 2016 then total dividend paid = per share dividend*number of shares

= 0.91*530,000 = 480,000

Dividend payout ratio = total dividend/ net income = 480,000/1,830,000 = 26.23%

e). Statement I is correct. - Since the company would like to avoid transactions costs involved in issuing new equity, it would be best for the firm to maintain the same per-share dividend as it results in lower total dividend payout.