Smith Motors Inc.manufactures,distributes,and services automotive parts and engines worldwide.Smith's income statement for the year just ending is shown below.Assume that today is the first day of Year 2 and that Smith's common shares are trading at a price of $88.In its most recent Management Discussion and Analysis (MD&A)Smith's management forecast earnings-per-share of $7.5 for Year 2.If Smith maintains its Year 1 payout ratio,then what is the dividend yield (based on forecasted earnings)?
Smith Motors Inc.
Income Statement
Year 1 ($000,000's)

Question

Quizplus · Accepted Answer

First, find the Year 1 payout ratio:
Payout Rate = 11ea7fdb_fc50_f21d_a768_cd22a3bf6130_TB2902_11 Payout Rate = 11ea7fdb_fc51_192e_a768_732d84202569_TB2902_11 Payout Rate = 0.1762 or 17.62%
Dividend per share = Payout Rate × EPS
Dividend per share = 0.1762 × $7.50
Dividend per share = $1.3215
Dividend Yield = 11ea7fdb_fc51_192f_a768_a7b308c9eceb_TB2902_11 Dividend Yield = 11ea7fdb_fc51_1930_a768_bdd700530508_TB2902_11 Dividend Yield = 0.01507 or 1.51%