Given the earnings per share over the period 2005-2012 shown in the following table, determine the annual dividend per share under each of the policies set forth in parts a through d.
Year Earnings per share
2012....................US$1.40
2011.........................1.56
2010.........................1.20
2009........................-0.85
2008.........................1.05
2007.........................0.60
2006.........................1.00
2005.........................0.44
a. Pay out 50 percent of earnings in all years with positive earnings.
b. Pay US$0.50 per share and increase to US$0.60 per share whenever earnings per share rise above US$0.90 per share for 2 consecutive years.
c. Pay US$0.50 per share except when earnings exceed US$1.00 per share, in which case pay an extra dividend of 60 percent of earnings above US$1.00 per share.
d. Combine the policies described in parts b and c. When the dividend is raised (in part b), raise the excess dividend base (in part c) from US$1.00 to US$1.10 per share.
e. Compare and contrast each of the dividend policies described in parts a through d.