Question No 1

Bowles Sporting Inc. is prepared to report the following income statement (shown in thousands of dollars) for the year 2009.

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

a. The company had a 40% dividend payout ratio in 2008. If Bowles wants to maintain this payout ratio in 2009, what will be its per-share dividend in 2009?

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

c. The company reported net income of $1.5 million in 2008. Assume that the number of shares outstanding has remained constant. What was the companys per-share dividend in 2008?

d. As an alternative to maintaining the same dividend payout ratio, Bowles is considering maintaining the same per-share dividend in 2009 that it paid in 2008. If it chooses this policy, what will be the companys dividend payout ratio in 2009?