Example Dividends

To clarify some aspect of dividends, let us verify the following

example
An offshore business company has the following data:
No. common shares outstanding (Ncs) 80,000
Par value $4
Earnings are used to finance the company's growth
Company's growth (average/year) 10%
Realistic future growth* 4%
* associated with an increase in dividend payout
The rate of return required for new investment (rs) 12%
The new investment for next year should not exceed $500,000
Projected net income for next year [P(NI)] $1,000,000
Projected dividend payout for next year 20%
projected retained earnings for next year $800,000

Assume that:
the new investment is financied by next year retained earnings,
the company uses the residual distribution model, and
the ccompany pays all distribution in the form of dividends.
Find DPS, and payout ratio?

P(NI) $1,000,000
Projected capital investment $500,000
Available $500,000
Ncs = 80,000
DPS = D1 = $6.25

EPS = P(NI) / Ncs = $12.50

Payout ratio = DPS / EPS = 50%

Current price (P0) = D1 / (rs-g) = $78.13

Under the following conditions, P0 =

D1 based on payout ratio of 20%
and EPS of $13
D1 = payout ratio * EPS $2.60
rs = 12%
g= 10%
P0 = 130
D1 based on payout ratio of 0.2
and EPS of 13
D1 = payout ratio * EPS 2.6
rs = 0.12
g= 0.1
P0 = 130
An offshore business company has the following data:
No. common shares outstanding (Ncs) 80,000
Par value $4
Earnings are used to finance the company's growth
Company's growth (average/year) 10%
Realistic future growth* 4%
* associated with an increase in dividend payout
The rate of return required for new investment (rs) 12%
The new investment for next year should not exceed $500,000
Projected net income for next year [P(NI)] $1,000,000
Projected dividend payout for next year 20%
projected retained earnings for next year $800,000

Assume that:
the new investment is financied by next year retained earnings,
the company uses the residual distribution model, and
the ccompany pays all distribution in the form of dividends.
Find DPS, and payout ratio?

Under the following conditions, P0 =?

D1 based on payout ratio of 20%
and EPS of $13
D1 = payout ratio * EPS $3

Find: rs , g , and P0

12
 Example Dividends
To clarify some aspect of dividends, let us verify the following example
An offshore business company has the following data:
No. common shares outstanding (Ncs) 100,000
Par value $5
Earnings are used to finance the company's growth
Company's growth (average/year) 10%
Realistic future growth* 4%
* associated with an increase in dividend payout
The rate of return required for new investment (rs) 12%
The new investment for next year should not exceed $500,000
Projected net income for next year [P(NI)] $1,200,000
Projected dividend payout for next year 20%
projected retained earnings for next year $960,000

Assume that:
the new investment is financied by next year retained earnings,
the company uses the residual distribution model, and
the ccompany pays all distribution in the form of dividends.
Find DPS, and payout ratio?

P(NI) $1,200,000
Projected capital investment $500,000
Available $700,000
Ncs = 100,000
DPS = D1 = $7

EPS = P(NI) / Ncs = $12

Payout ratio = DPS / EPS = 58%

Current price (P0) = D1 / (rs-g) = 87.5

Under the following conditions, P0 =

D1 based on payout ratio of 20%
and EPS of $12
D1 = payout ratio * EPS $2
rs = 12%
g= 10%
P0 = $120
 $7

$2.40