Dividents- Brooks Sproting Inc. is prepared to report the following 2016 income statement (shown in thousands of dollars).
Sales $15,300
Operating costs including depreciation 12,240
EBIT $3,060
Interest 330
EBT $2,730
Taxes (40%) 1,092
Net Income $1,638
Prior to reporting this income statement, the company wants to determine its annual dividend. The company has 320,000 shares of common stock outstanding, and its stock trades at $37 per share.
a. The company had a 25% payout ratio in 2015. If Brooks wants to maintain this payout ratio in 2016, what will be its per-share divident in 2016?
b. If the company maintains its 25% payout ratio, what will be the current dividend yield on the companys stock?
c. The company reported net income of $1.35 million in 2015. Assume that the number of shares outstanding has remained constant. What was the company's per-share divident in 2015?
d. As an alternative to maintaining the same divident payout ratio, Brooks is considering maintining the same per-share divident in 2016 then paid in 2015. If it chooses this policy, what will be the company's divident payout ratio in 2016?
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 divident payout ratio or to maintain the same per-share divident? EXPLAIN.