Question
Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013Boehm paid dividends of $2.6 million on
Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013Boehm paid dividends of $2.6 million on net income of $9.8 million. However, in 2014 earnings areexpected to jump to $12.6 million, and Boehm plans to invest $7.3 million in a plant expansion. This onetimeunusual earnings growth wont be maintained, though, and after 2014 Boehm will return to itsprevious 8% earnings growth rate. Its target debt ratio is 35%.Calculate Boehms total dividends for 2014 under each of the following policies:1.
(a) Its 2014 dividend payment is set to force dividends to grow at the long-run growth rate inearnings.
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