Question

Alternative dividend policies Given the earnings per Share over the period 2012-2019 shown in the following table, ma determine the annual dividend per share under each of the policies se a. Pay out 60% of earnings in all years with positive earnings b. Pay $0.40 per share and increase to 50.50 per share whenever earnings per share rise above 50 90 per share for two consecutive years c. Pay $0.40 per share except when earnings exceed 51,00 per share, in which case pay an extra dividend of 70% of earnings above $1.00 per share d. Combine policies in parts b and c. When the dividend is raised in part b), raise the excess dividend base (in partc) from $100 to $1.10 per share e. Compare and contrast each of the dividend policies described in parts a through a. If the firm pays out 60% of earnings in all years with positive earnings, the annual dividend the firm would pay in year 2010 is S Round to the nearest cent b. the firm pays $0.40 per share and increases the dividend to 50 50 per share whenever earnings per share rise above 50 90 per share for two consecutive years the annual dividend their (Round to two decimal places c. the firm pays 50 40 per share except when earings exceed $1.00 per share in which case pay an extra dividend of 70% of earnings above $1.00 per share the annualifividend the fem would (Round to two decimal places.) d. If the firm combines policies in parts b and when the dividend is raised in part bj trases the excess dividend base (in partc from $1.00 to $110 per share. The annual dividend them is (Round to two decimal places) e. Compare and contrast each of the dividend policies described in parts a through d Which policy uses a constant-payout ratlo? Select the best answer below) C A. The policy described in part is a constant cavout ratio which will viel low or no dividends if earnings decline or a loss occur Click to select your answers

Answer 1

	a	Pay out 60% of earnings in all years with positive earning
		Year	Earning per share	Dividend per share	Calculation
		2019	$1.55	$0.93	(0.6*1.55)
		2018	$1.56	$0.94	(0.6*1.56)
		2017	$1.36	$0.82	(0.6*1.36)
		2016	-$0.89	$0.00
		2015	$1.07	$0.64	(0.6*1.07)
		2014	$0.65	$0.39	(0.6*0.65)
		2013	$0.98	$0.59	(0.6*0.98)
		2012	$0.31	$0.19	(0.6*0.31)
	b	Pay $0.40 per share and increase to $0.50 per share whenever earnings per share rise above $0.90 per share for two consecutive years
		Year	Earning per share	Dividend per share	Remarks
		2019	$1.55	$0.50	Earning per share above $0.90 in 2018 and 2019
		2018	$1.56	$0.50	Earning per share above $0.90 in 2017 and 2018
		2017	$1.36	$0.40
		2016	-$0.89	$0.40
		2015	$1.07	$0.40
		2014	$0.65	$0.40
		2013	$0.98	$0.40
		2012	$0.31	$0.40
	c	Pay $0.40 per share except when earnings exceed $1.00 per share in which case pay and extra dividend of 70% of earnings above $1.00 per share
		Year	Earning per share	Dividend per share	Calculation
		2019	$1.55	$0.79	0.40+0.70*(1.55-1.00)
		2018	$1.56	$0.79	0.40+0.70*(1.56-1.00)
		2017	$1.36	$0.65	0.40+0.70*(1.36-1.00)
		2016	-$0.89	$0.40
		2015	$1.07	$0.45	0.4+0.7*(1.07-1)
		2014	$0.65	$0.40
		2013	$0.98	$0.40
		2012	$0.31	$0.40
					Combine policies in part band part c.When dividend is raised in part b, raise the excess dividend base from $1.00 to $1.10 per share Year Earning Dividend per share per share Calculation 2019 $1.55 $0.82 0.50+0.7*(1.55-1.10) 2018 $1.56 $0.82 0.50+0.7*(1.56-1.10) 2017 $1.36 $0.58 0.40+0.7*(1.36-1.10) 2016 $0.89 $0.40 2015 $1.07 $0.40 2014 $0.65 $0.40 2013 $0.98 $0.40 2012 $0.31 $0.40