10. The Claustrophobic Solution, Inc., a residential window and door manufacture
ID: 2765757 • Letter: 1
Question
10. The Claustrophobic Solution, Inc., a residential window and door manufacturer, has the following historical record of earnings per share (EPS) from 2011 to 2007:
2011
2010
2009
2008
2007
EPS
$1.10
$1.05
$1.00
$0.95
$0.90
The company’s payout ratio has been 60% over the last five years and the last quoted price of the firm’s share of stock was $12. Flotation costs for new equity will be 6%. The company has 32,000,000 of common shares of stock outstanding and a debt-equity ratio of 0.5.
If dividends are expected to grow at the same arithmetic average growth rate of the last five years, what is the dividend payment in 2012?
2011
2010
2009
2008
2007
EPS
$1.10
$1.05
$1.00
$0.95
$0.90
Explanation / Answer
Average Growth rate = Sum of Growth / no. of year
= 20.58%/4 =5.15%
Dividend in year 2012 = Last dividend*(1+Average growth rate)
= 0.66*1.0515 =$0.69
Year 2007 2008 2009 2010 2011 EPS $0.90 $0.95 $1.00 $1.05 $1.10 Dividend per Share(60%) $0.54 $0.57 $0.60 $0.63 $0.66 % Increase in dividend 5.56% 5.26% 5.00% 4.76%Related Questions
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