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13-8. (Alternative dividend policies) Final earnings estimates for the Smithfield Meat Packing Company have been prepared for the CFO of the company and are shown
13-8. (Alternative dividend policies) Final earnings estimates for the Smithfield Meat Packing Company have been prepared for the CFO of the company and are shown in the following table. The firm has 4,000,000 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 30 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 $18 million. The year-end extra dividend will equal 50 percent of profits exceeding $20 million. c. A constant dividend payout ratio of 40 percent. YEAR 1 2 3 4 PROFITS AFTER TAXES $12,000,000 15,000,000 19,000,000 23,000,000 25,000,000 un +
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