Reference no: EM132546612

Khan Sports Company is prepared to report the following income statement for the year 2015.

Sales Rs. 15,200,000

Operating costs including depreciation (11,900,000)

EBIT Rs. 3,300,000

Interest (300,000)

EBT Rs. 3,000,000

Taxes (40%) (1,200,000)

Net income Rs. 1,800,000

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 Rs. 48 per share.

a. The company had a 40% dividend payout ratio in 2014. If Khan Sports Company wants to maintain this payout ratio in 2009, what will be its per-share dividend in 2015? [1]

b. If the Khan Sports Company maintains this 40% payout ratio, what will be the current dividend yield on the company's stock?

c. Khan Sports company reported net income of Rs. 1,500,000 in 2014. Assume that the number of shares outstanding has remained constant. What was the company's per-share dividend in 2014?

d. As an alternative to maintaining the same dividend payout ratio, Khan Sports Company is considering maintaining the same per-share dividend in 2015 that it paid in 2014. If it chooses this policy, what will be the company's dividend payout ratio in 2015?

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 dividend payout ratio or to maintain the same per-share dividend?