8. A financial analyst is attempting to assess the future dividend policy of Interactive Technology by examining its life cycle. She anticipates no payout of earnings in the form of cash dividends during the development stage (I). During the growth stage (II), she anticipates 10 percent of earnings will be distributed as dividends. As the firm progresses to the expansion stage (III), the payout ratio will go up to 40 percent, and eventually reach 60 percent during the maturity stage (IV).

a. Assuming earnings per share will be the following during each of the four stages, indicate the cash dividend per share (if any) during each stage.

Stage I .................... $ .20 Stage I I .................. 2.00 Stage III.................. 2.80 Stage IV.................. 3.00

b. Assume in Stage IV that an investor owns 425 shares and is in a 15 percent tax bracket for dividends; what will be his or her total aftertax income from the cash dividend?

c. In what two stages is the firm most likely to utilize stock dividends or stock splits?