Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Over the last 10 years, a firm has had the earnings per share shown in the following table. Year - Earnings per share - Year

Over the last 10 years, a firm has had the earnings per share shown in the following table.

Year - Earnings per share - Year - Earnings per share

2015 - $4.00 - 2010 - $2.40

2014 - 3.80 - 2009 - 1.20

2013 - 3.20 - 2008 - 1.80

2012 - 2.80 - 2007 - 0.50

2011 - 3.20 - 2006 - 0.25

a. If the firms dividend policy were based on a constant payout ratio of 40% for all years with positive earnings and 0% otherwise, what would be the annual dividend for each year?

b. If the firm had a dividend payout of $1.00 per share, increasing by $0.10 per share whenever the dividend payout fell below 50% for two consecutive years, what annual dividend would the firm pay each year?

c. If the firms policy were to pay $0.50 per share each period except when earnings per share exceed $3.00, when an extra dividend equal to 80% of earnings beyond $3.00 would be paid, what annual dividend would the firm pay each year?

d. Discuss the pros and cons of each dividend policy described in parts a through c.

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

Fraud Examination Investigative And Audit Procedures

Authors: Joseph T. Wells

1st Edition

089930639X, 978-0899306391

More Books

Students also viewed these Accounting questions

Question

Estimate the spin-only molar susceptibilityofMnS044H20 at 298 K.

Answered: 1 week ago