Alternative Dividend Policies

Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years, and in 2021 Boehm paid dividends of $6 million on net income of $15 million. However, net income is expected to grow by 30% in 2022, and Boehm plans to invest $11.0 million in a plant expansion. This one-time unusual earnings growth won't be maintained, though, and after 2022 Boehm will return to its previous 8% earnings growth rate. Its target debt ratio is 38%. Boehm has 1 million shares of stock.

1. Calculate Boehm's dividend per share for 2022 under each of the following policies:
   1. Its 2022 dividend payment is set to force dividends to grow at the long-run growth rate in earnings. Round your answer to the nearest cent.

      $

   2. It continues the 2021 dividend payout ratio. Round your answer to the nearest cent.

      $

   3. It uses a pure residual policy with all distributions in the form of dividends (38% of the $11.0 million investment is financed with debt). Round your answer to the nearest cent.

      $

   4. 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.

      $

2. Which of the preceding policies would you recommend?

   -Select-12345