Bochm Corporation has had stable earnings growth of 8% a year for the past 10 years and

in 2016 Boehm paid dividends of $2.6 million on net income of $9.8 million. Howeven,

in 2017 carnings are expected to jump to $12.6 million, and Boehm plans to invest

57.3 million in a plant expansion. This one-time unusual earnings growth won't be

mainlalned, though, and after 2017 Bochm will return to Its previous 8% earnings gront

rate. Its target debt ratio is 35%.

2. Calculate Boehm's total dividends for 2017 under each of the following policies:

(7) Its 2017 dividend payment is set to force dividends to grow at the long-tun

growth rate in earnings.

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Chapter 14 Distributions to Shareholders: Dividends and Repurchases

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(2) It continues the 2016 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 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.