a. (1) 2,808,000 (these are the answers, I need to know how to show my work.)

(2) 3,340,000

(3) 7,855,000

(4) Regular = 2,808,000

Extra 5,047,000

Boehm Corporation has has stable earnings growth of 8% a year for the past 10 years and in 2013 Boehm paid dividends of $2.6 million on net income

of $9.8 million. However, in 2014 earning are expected to jump to 12.6 million, and Boehm plans to invest $7.3 in a plant expansion. This one-time unusual

earnings growth won't be maintained, though, and after 2014 Boehm will return to its previous 8% earnings growth rate. Its target debt ratio is 35%.

a. Calculate Boehms's total dividends for 2014 under each of the following policies:

(1) Its 2014 dividend payment is set to force dividends to grow at the long-run growth rate in earnings.

(2) It continutes the 2013 dividend payout ratio.

(3) It uses a pure residual policy with all distributions in the form of dividends (35% of the $7.3 million investment is financed with debt).

(4) It employes a regular-dividend-plus-extras policy, with the regular dividend being based on the long-run growth rate and the extra

dividend being set according to the residual policy.

b. which of the preceding policies would you recommend? Restrict your choices to the ones listed, but justify your answer.

c. Does a 2014 dividend of $9 million seem reasonable in view of your answers to parts a and b? if not, should the dividend be higher or lower?