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PQR Inc. has a debt-equity ratio of 1.6 and 1 million shares outstanding. The firm’s pro-forma...

PQR Inc. has a debt-equity ratio of 1.6 and 1 million shares outstanding. The firm’s pro-forma Statement of Comprehensive income for the next year indicates that its net income will be $560,000. If the company proposes to invest 60% of its earnings in projects, what is the dividend per share?

Select one:

a. $0.34

b. $0.43

c. $0.56

d. $0.90

e. $1.46

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Homework Answers

Answer #1

Net income = $560,000

Invest 60% of earnings = 560,000 * 0.60 = $336,000

Debt to equity = 1.6

D + E = 336,000

D = 1.6E

1.6E + E = 336,000

2.6E = 336,000

E = 336,000/2.6

E = 129,230.769230769

Total dividend distributed = Net income - E

Total dividend distributed = 560,000 - 129,230.769230769

Total dividend distributed = 430,769.230769231

Dividend per share = Total dividend distributed/Number of shares outstanding

Dividend per share = 430,769.230769231/1,000,000

Dividend per share = 0.4307692308

Dividend per share = 0.43

(Option b is correct)

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