Question

Excel Online Structured Activity: Dividends Brooks Sporting Inc. is prepared to report the following 2016 income statement (shown in thousands of dollars). Sales Operating costs including depreciation EBIT Interest EBT Taxes (40%) $11800 8378 $3422 297 $3125 1250 Net income $1875 Prior to reporting this income statement, the company wants to determine its annual dividend. The company has 340000 shares of stock outstanding, and its common stock trades at $39 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. Open spreadsheet a. The company had a 60% 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. b. If the company maintains this 60% payout ratio, what will be the current dividend yield on the company's stock? Round your answer to two decimal places.
EXCEL SPREADSHEET DATA BELOW:

Dividends
Dollars in Thousands:
Tax rate	40.00%
Operating cost %	71.00%
Common shares outstanding	340,000
Common stock price	$39.00
Dividend payout ratio	60.00%
Sales	$11,800
Operating costs	8,378
EBIT	$3,422
Interest	297
EBT	$3,125
Taxes	1,250
Net income	$1,875
Calculation of current per share dividend:			Formulas
DPS, current year			#N/A
Current dividend yield calculation:
Current dividend yield			#N/A
Calculation of last year's per share dividend:
Last year's net income	$1,600
DPS last year			#N/A
Calculation of dividend payout ratio based on last year's per share dividend:
Dividend payout ratio on current net income			#N/A

Answer 1

a). 2016 Net income = 1,875,000

Shares O/S = 340,000

Total dividend paid out in 2016 = payout ratio*net income = 60%*1,875,000 = 1,125,000

Dividend per share = 1,125,000/340,000 = $3.31

b). Current dividend yield = 2016 dividend/current share price = 3.31/39 = 8.48%

c). Dividend per share in 2015 = (60%*Net income/shares O/S) = 60%*1,600,000/340,000 = $2.82 per share

d). Same dividend per share in 2016 as 2015 means that total dividend paid out = 60%*1,600,000 = 960,000

Dividend payout ratio in 2016 = dividends paid out/net income = 960,000/1,875,000 = 51.20%

e). Same per-share dividend requires less capital than dividend based on same payout ratio so if the company wants to conserve capital, it is best to give the same dividend per share as in 2015. Statement II is correct.