16 - 1

Capital $ 3,000,000
Net Income $ 3,000,000
Equity 30%
Debt 70%

T arg et Total 
Dividends  Net income   equity  capital 
 ratio budget 


Dividends = $ 2,100,000
Dividend Payout = Dividends
Net Income
70%

16 - 2

P0 $ 80
Split 4/2

P0 New $ 80
4/2
$ 40

16 - 3

Net Income $ 2,000,000

#Shares 1,000,000
P0 32
Repurchase 20%
#Shares Purchased 200,000
#Shares Remaining 800,000

Current EPS = Net Income

#Shares
2.00

P/E Ratio = P0
EPS
16

New EPS = 2.5

New P/E Ratio = 12.80