Bowles Sporting Inc. is prepared to report the following 2012 income statement (shown in thousands of dollars).

Question:

Sales.............................................................................$15,200

Operating costs including depreciation......................................11,900

EBIT.............................................................................$ 3,300

Interest...............................................................................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 common stock outstanding, and its stock trades at $48 per share.

a. The company had a 40% dividend payout ratio in 2011. If Bowles wants to maintain this payout ratio in 2012, what will be its per-share dividend in 2012?

b. If the company maintains this 40% payout ratio, what will be the current dividend yield on the company's stock?

c. The company reported net income of $1.5 million in 2011. Assume that the number of shares outstanding has remained constant. What was the company's per-share dividend in 2011?

d. As an alternative to maintaining the same dividend payout ratio, Bowles is considering maintaining the same per-share dividend in 2012 that it paid in 2011. If it chooses this policy, what will be the company's dividend payout ratio in 2012?

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.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...