Question

Low-regular and extra dividend policy Bennett Farm Equipment Sales, Inc. is in a highly cyclical business. Although the firm has a target payout ratio of 30%, its board realizes that strict adherence to that ratio would result in a Puctuating dividend and create uncertainty for the firm's stockholders. Therefore, the firm has declared a regular dividend of $040 per share per year with extra cash dividends to be paid when earnings justify them. Eamnings per share for the last several years are as follows: a. Calculate the payout ratio for each year on the basis of the regular $0 40 dividend and the cited EPS b. Calculate the difference between the regular $0.40 dividend and a 30% payout for each year. C. Bennett has established a policy of paying an extra dividend of 50.25 only when the difference between the regular dividend and a 30% payout amounts to $1.00 or more. In which year would an extra dividend be paid? What would be done with the extra' earnings that are not paid out? d. The firm expects that future earnings per share will continue to fluctuate but will remain above $2.85 per share in most years. What factors should be considered in making a revisin to the amount pais as a regular dividend if the firm revises the regular dividend, what new amount should it pay? a. The payout ratio for year 2014 on the basis of the regular 50 40 dividend and the cited EPS is % (Round to one decimal place © Data Table Year Click on the con located on the top right corner of the data table below in order to copy its contents into a spreadsheet) EPS Year EPS 2019 $3.56 2016 53 44 2018 $3.42 2015 52.75 2017 2014 51 64 $2 85 Enter your answer in the answer box and then click Check Answer

Answer 1

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ke - Microsoft Excel (Product Activation Failed) Add-Ins View - 2x Dr General Wrap Text Merge Merge & Center - Center Σ AutoSum : A Fill 2 Sort & SF $ -% % 4:0 .00 Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles 2 Clear File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = Ea Copy Paste Format Painter BI U D A Clipboard Font C0122 fx CM CN | CO | CP CQ 122 Find & Select Filter Editing Alignment Number Cells | CR CS CT CU CV Formula Bar CX CYCZ : 123 124 125 126 year EPS A 2014 2015 2016 2017 2018 2019 DPS B 1.64 2.75 3.44 2.85 3.42 3.56 PAYOUT RATIO B/A 0.4 24.4% 0.4 14.5% 0.4 11.6% 0.4 14.0% 0.4 11.7% 0.4 11.2% 127 128 129 130 131 132 133 134 year EPS DPS 135 0.4 0.4 0.4 2014 2015 2016 2017 2018 2019 136 30 % PAYOUT DIFFERENCE C=30%*A C-B 0.492 0.09 0.825 0.43 1.032 0.63 0.855 0.46 1.026 0.63 1.068 0.67 1.64 2.75 3.44 2.85 3.42 3.56 137 0.4 0.4 0.4 138 139 140 RE Rea N betaport future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right clean YIELD bond portfolio cap stru WACC CONvexity DGM ferences RESI ex div DIV POLICY NAME BOJ 130% DIV YIELDI - 0 _+ ENG 122 20-11-2019 DE *

ke - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Calibri Dr General Wrap Text FMerce Merge & Center - Center BI U s $ % % , 4.0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles -11AA = = = D- DA E E E Font fix CO CP Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Alignment Number Cells CN CQ / CR CS CT CU CV CW cx . cy cz E Copy Paste Format Painter Clipboard 20151 CM 140 141 142 143 144 145 THE FIRM WOULD NOT PAY ANY EXTRA DIVIDEND AS DIFFERENCE BETWEEN REGULAR DIVIDEND AND 30% PAYOUT IS NOT MORE THAN $1 IN ANY OF THE YEARS THE FIRM CAN INVEST THAT EXTRA CASH IN SHORT TERM INVESTMENTS 0.86 IF EPS REMAINS ABOVE 2.85 PER SHARE, COMPANY CAN PAY TARGET PAYOUT OF 30%, WHICH IS EQUAL TO = 2.85 X 30% = THIS WILL NOT AFFECT THE CASH POSITION OF COMPANY AND WILL ABLE TO PAY EXTRA DIVIDEND WHEN EARNS HIGHER 146 NEW AMOUNT OF DIVDEND = 0.86 147 148 149 150 151 152 153 154 155 156 157 158 N betaport future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right clean YIELD bond portfolio cap stru WACC c oNvexity DGM ferences RESI ex div DIV POLICY NAME 20J 130% DIV YIELDI 0 Red + DO 4 * 4 OENG 20-11-2019