Excel Online Structured Activity: Dividend Policy

Boehm Corporation has had stable earnings growth of $10\%$ a year for the past $10$ years, and in $2015$ Boehm paid dividends of $$2\mathrm{.}3$ million on net income of $$19\mathrm{.}0$ million. However, in $2016$ earnings are expected to jump to $$26\mathrm{.}6$ million, and Boehm plans to invest $$13\mathrm{.}3$ million in a plant expansion. This one$-$time unusual earnings growth won't be maintained, though, and after $2016$ Boehm will return to its previous $10\%$ earnings growth rate. Its target debt ratio is $35\%.$

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

a$.$ Calculate Boehm's total dividends for $2016$ under each of the following policies. Enter your answers in dollars. For example: $$2\mathrm{.}9$ million should be entered as $$2,900,000.$ Do not round intermediate calculations. Round your answers to the nearest dollar.

Its $2016$ dividend payment is set to force dividends to grow at the long$-$run growth rate in earnings.

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It continues the $2015$ dividend payout ratio.

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It uses a pure residual policy with all distributions in the form of dividends $(35\%$ of the $$13\mathrm{.}3$ million investment is financed with debt$).$

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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. How much will the extra dividend be$?$

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