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 $5 for Year 2.If Smith maintains its Year 1 dividend per share in Year 2,then what will its Year 2 payout ratio be?
Smith Motors Inc.
Income Statement
Year 1 ($000,000's)

Question

Quizplus · Accepted Answer

First, find the Year 1 dividend per share:
Dividend per share = 11ea7fdb_fc51_4042_a768_4be124a6c10d_TB2902_11 Dividend per share = 11ea7fdb_fc51_4043_a768_c59a4c2ed176_TB2902_11 Dividend per share = $1.47
Payout Ratio = 11ea7fdb_fc51_4044_a768_dd6947eaf9b1_TB2902_11 Payout Ratio = 11ea7fdb_fc51_4045_a768_3778ac5b73a1_TB2902_11 Payout Ratio = 0.2931 or 29.31%