Zonvier, Inc., has sales of $53,800, a profit margin of 10.5%, and a plowback ratio of 40%. The company has 15,000 shares of stock outstanding. The firm uses the percentage of sales method for pro forma statements and estimates next year's sales will increase by 15%. What is the dividend per share expected to be next year?

Question

Quizplus · Accepted Answer

First, we need to calculate the net income for next year using the information given:

Net Income = Sales x Profit Margin x (1 - Plowback Ratio)
Net Income = $53,800 x 0.105 x (1 - 0.40)
Net Income = $2,707

Next, we need to calculate the dividends to be paid out using the dividends paid out for the current year:

Dividends = Net Income x (1 - Plowback Ratio) / Number of Shares
Dividends = $2,707 x (1 - 0.40) / 15,000
Dividends = $0.07218

Finally, we can use the percentage of sales method to estimate the dividend per share for next year:

Dividend per Share = Dividends / (1 + Sales Increase Rate)
Dividend per Share = $0.07218 / (1 + 0.15)
Dividend per Share = $0.06280

Therefore, the closest answer choice is C) $.260.