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Alternative dividend policies  Over the last 10​ years, a firm has had the earnings per share...

Alternative dividend policies  Over the last 10​ years, a firm has had the earnings per share shown in the following​ table:

Year Earnings per Share Year Earnings per Share
2019 $1.50 2014 $2.19
2018 $3.93 2013 $1.18
2017 $3.76 2012 $1.18
2016 $3.99 2011 -$1.07
2015 $3.93 2010 $0.85

a. If the​ firm's dividend policy were based on a constant payout ratio of​ 40% for all years with positive earnings and​ 0% otherwise, what would be the annual dividend for 2015​?

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 2015​?

c. If the​ firm's policy were to pay​ $0.50 per share each period except when earnings 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 2015​?

d. Discuss the pros and cons of each dividend policy described in parts a through c.

Solutions

Expert Solution

a. Annual dividend for 2015 :- $1.572

b. Annual dividend for 2015 :- $1.00

c. Annual dividend for 2015 :- $1.244

d. Pros and Cons of all three dividend policies are described in below attached solution sheet

Detailed solution has been attached here :-

jeff jeffy answered 2 years ago
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