Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Alternative Dividend Policies Boehm Corporation has had stable earnings growth of 4% a year for the past 10 years, and in 2019 Boehm paid dividends

image text in transcribed

Alternative Dividend Policies Boehm Corporation has had stable earnings growth of 4% a year for the past 10 years, and in 2019 Boehm paid dividends of $1 million on net income of $5 million. However, net income is expected to grow by 24% in 2020 , and Boehm plans to invest $4.0 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 4% earnings growth rate. Its target debt ratio is 33%. Boehm has 1 million shares of stock. a. Calculate Boehm's dividend per share for 2020 under each of the following policies: 1. Its 2020 dividend payment is set to force dividends per share to grow at the long-run growth rate in earnings. Round your answer to the nearest cent. $ 2. It continues the 2019 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 ( 33% of the $4.0 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. $ b. Which of the preceding policies would you recommend

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management For Decision Makers

Authors: Peter Atrill

9th Edition

1292311436, 978-1292311432

More Books

Students also viewed these Finance questions

Question

Is SHRD compatible with individual career aspirations

Answered: 1 week ago