Question

please answer all parts A-D

5 of 8 (3 complete) Score: 0 of 1 pt P13-7 (similar to) Alternative dividend policies Over the last 10 years, a firm has had the eanings per share shown in the following table: E a. the firm's dividend policy were based on a constant payout ratio of 40 % for all years with positive eamings and 0 % otherwise, what would be the annual dividend for 2018 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 in 20187 c if the firm's policy were to pay 50.50 per share each period except when eamings 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 in 20187 d. Discuss the pros and cons of each dividend policy described in parts a through e a. If the firm's dividend policy were based on a constant payout ratio of 40 % Round to the nearest cent.) Data Table (Click on the ioon located on the top-right comer of the data table below in order to copy its contents into a spreadsheet.) Earnings per share Earnings per share o Year Year 2019 $4.02 2014 2013 $2.44 $1.46 $1.08 -$0.93 $0.74 2018 $3.98 2017 $4 23 2012 2016 $2.3 2011 $3.79 2015 2010 Print Done Enter your answer in the answer box and then click Check Answer parts remaining Clear All Check Anwer

Answer 1

Ans. a) Given : Constant payout ratio of 40% of Positive Earnings

Earning for 2018 (EPS) = $3.98

Dividend for 2018 = 3.98*40%

Dividend for 2018 = $1.59

Ans. b) Given: Dividend payout = $1.00 per year and an increment of $0.10 whenever dividend fell below 50% for two consecutive years

We can calculate dividend payout during these years in table below:

Year	EPS	Dividend	Dividend payout %
2013	$1.46	$1	68%
2014	$2.44	$1	41%
2015	$3.79	$1	26%
2016	$2.36	$1.1	47%
2017	$4.23	$1.1	26%
2018	$3.96	$1.1	28%

In 2016 and 2017 dividend payout is below 50% even after paying extra $0.10 so in 2018 additional dividend of $0.10 will be paid.

Total Dividend for 2018 = $1+ $0.10 = $1.10

Ans. c) Given: Fixed dividend per share = $0.5

If EPS exceeds $3.00 and additional dividend 80% of exceeding amount from $3.00

In 2018: EPS = $3.98

Dividend =0.5+ (0.98*0.8)

Dividend = 0.5+0.78

Dividend = $1.28

Ans d) Pros and Cons of all three dividend policies are given below:

	Pros	Cons
Policy a	Dividend payout remains constant which gives an easy understanding of dividend calculation to investors as well as firm	As payout ratio is fixed some times it may difficult to take advantages of funding huge capital expenditures from retained earnings
	Dividend payout and retention ratios are easy to determine
Policy b	The policy considers past payments of dividend, and it can be helpful to retain investors for long term as it gives hope for better dividends in future	Incremental dividend could be a extra burden on the firm in case of unfavourable conditions may lead to cash crunch.
Policy c	This policy may attract investors who takes investment decisions considering dividend income as they hope for higher dividend whenever firm is having incremental earnings	This policy attracts high dividend payout ratio that may harm further growth