Earnings before personal tax Market Capitalization/ Market Value of Equity
EPS(1-corporate tax) = EPS before PT = #of shares outstanding (to public) x market price per share
Eg. Corp earns $10, PT rate on dividends income 30%, Market to Book Ratio = Market Value of Equity / Book Value of Equity (aka price-to-bo
Corp tax rate 35% Enterprise Value: Market Value of Equity + Debt - Cash
10(1-0.35) = 6.5→ 6.5(1-0.30) = 4.55 Earnings per Share (EPS): Net Income / Shares outstanding
Payout Ratio: Dividends / Net Income (this is the % of money the firm pays out as dividends)
Sustainable Growth rate = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 / 𝐵𝑒𝑔 𝑒𝑞𝑢𝑖𝑡𝑦 x (1-payout r.) = ROE x R.R
Internal Growth rate = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒/𝐵𝑒𝑔 𝐴𝑠𝑠𝑒𝑡𝑠 x (1-payout r.) = ROA x R.R
Net financing required = ending assets - ending total liabilities & equity (if negative, then excess
→ to find ending equity (addition to equity) = net income x retention ratio is (1-payout r.)
Additional debt = beg. debt/beg assets → answer x beg debt → answer - beg debt
Ending total assets = beg total assets x (1 + sustainable growth rate)
You own 100 shares in a company that earns $4.00 per share before taxes, has a corporate tax
rate of 30%, and pays out 60% of its after-tax earnings as dividends. The tax rate on dividend
income is 15%. What is the total after-tax income you receive from your dividends?
Total earnings from 100 shares 400
Less: Corporate tax (400 x 0.3) =120 280
Dividend paid from earning after tax 168
(0.6 x 280)
Less: Tax on dividend (0.15 x 168) 25.2
Earnings after taxes from dividends 142.8
A corporation earns $4.00 per share, has a 30% corporate tax rate,
pays out 70% of its after tax earnings as dividends (or, it
keeps 30% of its earnings), and you have a 15% dividend tax rate
and 40% personal tax rate, how much in dividends will you get per share?
- $4.00 x (1 - corporate tax rate) = $4 x (1 - 0.30) = $2.80 after tax income
- $2.80 x (dividend payout) = $2.80 x 0.70 = $1.96 dividend payment per share
- $1.96 x (1 - taxes on dividends) = $1.96 (1 - 0.15) = $1.67 per share, after taxes
What if it was a REIT?
REIT:
- $4.00 x (1 - personal/income tax rate) = $4.00 x (1 - 0.40) = $2.40 per share
Real Estate Investment Trust (REIT): Unlike other income trusts,
dividends from REITS are taxes like personal
income, they do not have corporate or dividend taxes.
EPS(1-corporate tax) = EPS before PT = #of shares outstanding (to public) x market price per share
Eg. Corp earns $10, PT rate on dividends income 30%, Market to Book Ratio = Market Value of Equity / Book Value of Equity (aka price-to-bo
Corp tax rate 35% Enterprise Value: Market Value of Equity + Debt - Cash
10(1-0.35) = 6.5→ 6.5(1-0.30) = 4.55 Earnings per Share (EPS): Net Income / Shares outstanding
Payout Ratio: Dividends / Net Income (this is the % of money the firm pays out as dividends)
Sustainable Growth rate = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 / 𝐵𝑒𝑔 𝑒𝑞𝑢𝑖𝑡𝑦 x (1-payout r.) = ROE x R.R
Internal Growth rate = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒/𝐵𝑒𝑔 𝐴𝑠𝑠𝑒𝑡𝑠 x (1-payout r.) = ROA x R.R
Net financing required = ending assets - ending total liabilities & equity (if negative, then excess
→ to find ending equity (addition to equity) = net income x retention ratio is (1-payout r.)
Additional debt = beg. debt/beg assets → answer x beg debt → answer - beg debt
Ending total assets = beg total assets x (1 + sustainable growth rate)
You own 100 shares in a company that earns $4.00 per share before taxes, has a corporate tax
rate of 30%, and pays out 60% of its after-tax earnings as dividends. The tax rate on dividend
income is 15%. What is the total after-tax income you receive from your dividends?
Total earnings from 100 shares 400
Less: Corporate tax (400 x 0.3) =120 280
Dividend paid from earning after tax 168
(0.6 x 280)
Less: Tax on dividend (0.15 x 168) 25.2
Earnings after taxes from dividends 142.8
A corporation earns $4.00 per share, has a 30% corporate tax rate,
pays out 70% of its after tax earnings as dividends (or, it
keeps 30% of its earnings), and you have a 15% dividend tax rate
and 40% personal tax rate, how much in dividends will you get per share?
- $4.00 x (1 - corporate tax rate) = $4 x (1 - 0.30) = $2.80 after tax income
- $2.80 x (dividend payout) = $2.80 x 0.70 = $1.96 dividend payment per share
- $1.96 x (1 - taxes on dividends) = $1.96 (1 - 0.15) = $1.67 per share, after taxes
What if it was a REIT?
REIT:
- $4.00 x (1 - personal/income tax rate) = $4.00 x (1 - 0.40) = $2.40 per share
Real Estate Investment Trust (REIT): Unlike other income trusts,
dividends from REITS are taxes like personal
income, they do not have corporate or dividend taxes.
