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Alternative dividend policies Over the last 10 years, a firm has had the earnings per share shown in the following table . If
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Answer #1

a) In Case of Constant Dividend dividend policy:

Earnings per Share for 2019 : 4.16$

Constant payout ratio : 40%

Dividend payable For 2019 = 4.16*40% = 1.664 $ per Share

b) Annual Dividend for 2019 :

Up to 2013 EPS is 1.07$ , So Dividend will be 1.00$

For 2014 and 2015 EPS is 3.53$ and 4.65$ Respectively So, Dividend for 2016 will be increased by 0.10$.

For 2016 and 2017 EPS is3.03$ and 3.71 $ Respectively .So, Dividend for 2018 and 2019 will be Increased by 0.10$

Therefore, Dividend Payable For 2019 will be 1.20$ per Share

C) Annual Dividend for 2019 :

EPS for 2019 = 4.16$

Therefore Dividend for 2019 = 0.50$+(4.16-3.00)0.80

= 0.50 + 1.16* 0.80

=1.428 $ per Share

d)

  • If the Company follwos Constant Dividend policy , Then Share holders will be interested to invest in the company due to constant income but the company has obligation to pay Dividend though Company has Minimal Profits.
  • In Second case , Irrespective of Company profits or Losses Company has to Pay Dividend at 1.00$, Share holders will have interest to invest in the Company due to Constant Income.
  • In Third Case, Company has to pay 0.50$ per share Every year Irrespective of Profits or Losses and when Company has EPS more than 3.00$ . 80% of profits will be paid to Shareholders , Company will not have enough funds for Expansion.
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