Question

Final earnings estimates for the Smithfield Meat Packing Company have been prepared for the CFO of the company and are shown in the following​ table:

YEAR PROFITS AFTER TAXES 1 12,000,000 2 15,000,000 3 19,000,000 4 23,000,000 5 25,000,000

The firm has 4,000,000 shares of common stock outstanding. As assistant to the​ CFO, you are asked to determine the yearly dividend per share to be paid depending on the following possible​ policies:

a. A stable dollar dividend targeted at 30 percent of earnings over a​ 5-year period.

b. A​ small, regular dividend of $0.60 per share plus a​ year-end extra when the profits in any year exceed ​$18,000,000 The​ year-end extra dividend will equal 50 percent of profits exceeding ​$18,000,000

c. A constant dividend payout ratio of 40 percent.

a. What is the yearly dividend per share to be paid depending on a stable dollar dividend targeted at 30 percent of earnings for years 1 through​ 5?

​$nothing per share  ​(Round to the nearest​ cent.)

b. Determine the yearly dividend per share to be paid depending on a​ small, regular dividend of ​$0.60 per share plus a​ year-end extra when the profits in any year exceed ​$18,000,000.

The​ year-end extra dividend will equal 50 percent of profits exceeding $18,000,000.

YEAR	DIVIDEND
1	​$nothing	​(Round to the nearest​ cent.)

YEAR	DIVIDEND
2	​$nothing	​(Round to the nearest​ cent.)

YEAR	DIVIDEND
3	​$nothing	​(Round to the nearest​ cent.)

YEAR	DIVIDEND
4	​$nothing	​(Round to the nearest​ cent.)

YEAR	DIVIDEND
5	​$nothing	​(Round to the nearest​ cent.)

c. Determine the yearly dividend per share that will be paid assuming a constant dividend payout ratio of

40 percent.

YEAR	DIVIDEND
1	​$nothing	​(Round to the nearest​ cent.)

YEAR	DIVIDEND
2	​$nothing	​(Round to the nearest​ cent.)

YEAR	DIVIDEND
3	​$nothing	​(Round to the nearest​ cent.)

YEAR	DIVIDEND
4	​$nothing	​(Round to the nearest​ cent.)

YEAR	DIVIDEND
5	​$nothing	​(Round to the nearest​ cent.)

Answer 1