Smith Motors Inc manufactures, distributes, and services automotive pa

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)
Revenue $20,995
COGS 15,624
SG&A 2,466
Dep. Exp. 247
EBIT 2,658
Int. Exp. 55
Pre-Tax Income 2,603
Income Tax 898
Net Income 1,705

Shares Outstanding (millions) 205
Total Common Dividends $300.5

A) 0.88%
B) 1.32%
C) 1.51%
D) 1.76%
E) 2.62%

ANSWER

C