Felicity Trust has a dividend cover ratio of 5.0 on net income of $6.3 million. The company's EPS is $2.10 and its cum dividend price is $22.50. What is the expected ex dividend price of the shares?

Question

Quizplus · Accepted Answer

The expected ex-dividend price of the shares can be calculated by subtracting the dividend per share from the cum dividend price. The dividend cover ratio is given as 5.0, which means the net income covers the dividend 5 times. With a net income of $6.3 million and an EPS of $2.10, we can calculate the total number of shares as $6.3 million / $2.10 = 3 million shares. The total dividend paid is then $6.3 million / 5 = $1.26 million. The dividend per share is $1.26 million / 3 million shares = $0.42. Subtracting this from the cum dividend price gives $22.50 - $0.42 = $22.08.

Felicity Trust Has a Dividend Cover Ratio of 5