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In calculation of dividend capacity for 2006, we have to calculate Investment in additional assets and it is said that “Investment in additional assets in 2006 will be 0.25$ for every 1$ increase in revenue. So that means: revenue increase in $: 2678-2678/1.03 = 78m$ so 0.25*78=19.5m$
In answer is the following calculation and really can’t understand this:
(25%*0.03*2678/1.03*0.02)) What is 25% and why there is dividing by 1.03*0.02?Can you please explain?
$2678 is not the revenue but is the pre-tax operating revenue
Given that the operating profit margin is 2%, the revenue is 2678/0.02 = 183,900.
Therefore in the previous year it was 183,900/1.03 = 178544 and so the increase is 183,900 – 178,544 = 5,356 (which is obviously the same as 178,544 x 0.03).The 25% is the same as 0.25 ($0.25 for every $1 increase in revenue).
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