13-1. (Dividend policies) Final earnings estimates for Chilean Health Spa & Fitness Center have been prepared for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock outstanding. As assistant to the CFO, you are asked to determine the yearly dividend per share to be paid depending on the following possible policies:

• a. A stable dollar dividend targeted at 40 percent of earnings over a 5-year period
• b. A small, regular dividend of $0.60 per share plus a year-end extra when the profits in any year exceed $20,000,000. The year-end extra dividend will equal 50 percent of profits exceeding $20,000,000.
• c. A constant dividend payout ratio of 40 percent

YEAR	PROFITS AFTER TAXES
1	$ 18,000,000
2	21,000,000
3	19,000,000
4	23,000,000
5	25,000,000

PROBLEM 13-1
DIVIDEND POLICIES
DATA
	Profits after
Year	Taxes
1	18,000,000
2	21,000,000
3	19,000,000
4	23,000,000
5	25,000,000
	106,000,000
Outstanding		7,500,000
Div payout ratio		40%
Stable div/Earn		40%
over next 5 years
Regular div		0.60
Year-end extra
when profits exceed		20,000,000
% of profits		50%
A)
Target Dividend =
B)
Small, regular div plus year-end extra:
C)
Constant Payout Ratio:
Year 1	Year 2	Year 3	Year 4	Year 5
(Please use excel to solve)