Year 2015: The market price of the Chimes Co’s shares was £84 prior to a 3:1 spl
ID: 2788690 • Letter: Y
Question
Year 2015: The market price of the Chimes Co’s shares was £84 prior to a 3:1 split last year. The company’s £3.20 dividend on the new split shares represents an increase of 20% over last year’s dividend on the presplit stock.
Year 2016: The company has 5,000,000 shares outstanding and annual earnings before interest and tax of £100,000,000. Its interest expenses are £20,000,000 per year, and it pays £10,000,000 p.a. in dividends to its shareholders. The corporate tax rate is 40% and its ordinary share’s current dividend yield is 2%.
On 1 April 2016, the BOD of the company declared annual dividends on the ordinary shares. The dividends are payable on 22 May 2016 to shareholders of record on Tuesday 22 April 2016. As announced, it is the 32nd consecutive regular annual dividend on the ordinary shares.
Required:
a) What was the year 2014 dividend per share?
b) Calculate the company’s dividend payout ratio.
c) Calculate the company’s current share price.
d) Calculate the company’s earnings per share.
e) What is an ex-dividend date in year 2016? What is a meaning of ex-dividend date?
Explanation / Answer
a. Dividend after the split= 3.2
Equivalent dividend before the split will be= 3.2*3= 9.6
Since dividend growth is 20% in 2015 over 2014, dividend in 2014= 9.6/(1+20%)= 8 per share
b.
c.
d.
e. Ex dividend date is two days prior to the record date
Record date= 22 April 2016
Ex dividend date will be = 20 April 2016
Ex dividend date is relevant for receiving the dividends. A person who is holding the shares on ex dividend date will receive the dividend even if he sells shares after that date. Contrary to this if a person purchases shares after ex dividend date he will not receive dividend for that dividend distribution.
EBIT 100,000,000 Less: Interest (20,000,000) EBT 80,000,000 Less: tax@40% (32,000,000) A PAT 48,000,000 B Dividends paid 10,000,000 C=B/A*100 Dividend payout 20.833%Related Questions
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