36 Dividend Smoothing Sharpe SA has just paid a dividend of 1.25 per share of equity. Its...
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36 Dividend Smoothing Sharpe SA has just paid a dividend of €1.25 per share of equity. Its target payout ratio is 40 per cent. The company expects to have an earnings per share of €4.50 one year from now.
(a) If the adjustment rate is 0.3 as defined in the Lintner model, what is the dividend one year from now?
(b) If the adjustment rate is 0.6 instead, what is the dividend one year from now?
(c) Which adjustment rate is more conservative? Why?
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