Alternative Dividend Policies

Boehm Corporation has had stable earnings growth of $6\%$ a year for the past $10$ years, and in $2019$

Boehm paid dividends of $$12$ million on net income of $$20$ million. However, net income is expected to

grow by $28\%$ in $2020,$ and Boehm plans to invest $$13\mathrm{.}5$ million in a plant expansion. This one$-$time

unusual earnings growth won't be maintained, though, and after $2020$ Boehm will return to its previous

$6\%$ earnings growth rate. Its target debt ratio is $36\%.$ Boehm has $1$ million shares of stock.

a$.$ Calculate Boehm's dividend per share for $2020$ under each of the following policies:

Its $2020$ dividend payment is set to force dividends per share to grow at the long$-$run growth rate ir

earnings. Round your answer to the nearest cent.

$

It continues the $2019$ dividend payout ratio. Round your answer to the nearest cent.

$

It uses a pure residual policy with all distributions in the form of dividends $(36\%$ of the $$13\mathrm{.}5$

million investment is financed with debt$).$ Round your answer to the nearest cent.

$

It employs 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. What will the

extra dividend be$?$ Round your answer to the nearest cent.

$

b$.$ Which of the preceding policies would you recommend?