Interim Systems has 1.5 million shares outstanding. This year Interim will have operating income (EBIT) of $18.2 million, interest expenses of $2.4 million, depreciation expenses of $3.1 million. What will the dividend per share be if Interim's dividend payout ratio is 40%? Assume a marginal tax rate of 40%.
A) $2.53
B) $3.39
C) $2.03
D) $6.32

Question

Quizplus · Accepted Answer

First, calculate the net income: EBIT ($18.2M) - Interest ($2.4M) = $15.8M. Taxable income is $15.8M, and after 40% tax, net income is $9.48M. With a 40% payout ratio, dividends are $3.792M. Dividends per share = $3.792M / 1.5M shares = $2.53.

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