O'Grady Apparel Company was founded nearly 160 years ago when an Irish merchant named Garrett O'Grady landed in Los Angeles with an inventory of heavy canvas, which he hoped to sell for tents and wagon covers to miners headed for the California goldfields. Instead, he turned to the sale of harder-wearing clothing. Today, O'Grady Apparel Company is a small manufacturer of fabrics and clothing whose stock is traded in the OTC market. In 2019, the Los Angeles-based company experienced sharp increases in both domestic and European markets resulting in record earnings. Sales rose from $15.9 million in 2018 to $18.3 million in 2019 with earnings per share of $3.28 and $3.84, respectively. European sales represented 29% of total sales in 2019, up from 24% the year before and only 3% in 2010, 1 year after foreign operations were launched. Although foreign sales represent nearly one-third of total sales, the growth in the domestic market is expected to affect the company most markedly. Management expects sales to surpass $21 million in 2020, and earnings per share are expected to rise to $4.40. (Selected income statement items are presented in the table below). Selected Income Statement Items 2017 2018 2019 Projected 2020 Net sales Net profits after taxes Earnings per share (EPS) Dividends per share $13,860,000 $1,520,000 2.88 1.15 $15,940,000 $1,750,000 3.28 1.31 $18,330,000 $2,020,000 3.84 1.54 $21,080,000 $2,323,000 4.40 1.76 1. What type of dividend policy does the firm appear to employ ? Does it seem appropriate given the firm's recent growth in sales and profits ? 2. However, the board realizes that adhering strictly to the payout ratio will cause the dividend payout to fluctuate. Therefore, the board has declared a regular dividend of $ 0.75 per share per year while paying extra cash dividends if funds are available. Calculate the payout ratio for each year on the basis of the regular dividend payment and the EPS given. 3. For each year, what is the difference between the regular $ 0.75 dividend and the dividend policy in parts (1) ? 4. O'Grady Apparel Company made a decision to pay an extra dividend of $ 0.50 in years where the difference between the regular $ 0.75 dividend and the dividend policy in parts (1) is at least $ 0.70. Indicate the dividend payments and extra dividend payments, if any, for each year. 5. The company estimates future earnings per share will remain above $4.20 per share for most years. If the board wants to increase the regular dividend from $0.75 to $1.25, what factors should it consider before implementing the new regular dividend ? Explain