Question
In: Finance
YEAR PROFITS AFTER TAXES 1 $17,000,000 2 20,000,000 3 18,000,000 4 22,000,000 5 24,000,000 Dividend policies)...
|
YEAR |
PROFITS AFTER TAXES |
||
|
1 |
$17,000,000 |
||
|
2 |
20,000,000 |
||
|
3 |
18,000,000 |
||
|
4 |
22,000,000 |
||
|
5 |
24,000,000 |
Dividend
policies)
Final earnings estimates for Chilean Health Spa & Fitness Center have been prepared for the CFO of the company and are shown in the following table:
. The firm has
7,300,000
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
50
percent of earnings over a 5-year period.b. A small, regular dividend of
$0.50
per share plus a year-end extra when the profits in any year exceed
$19,000,000
The year-end extra dividend will equal
60
percent of profits exceeding
$19,000,000
c. A constant dividend payout ratio of
45
percent.a. What is the yearly dividend per share to be paid depending on a stable dollar dividend targeted at
50
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
$0.50
per share plus a year-end extra when the profits in any year exceed
$19,000,000
The year-end extra dividend will equal
60
percent of profits exceeding
$19,000,000
|
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
45
ercent.
|
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.) |
Solutions
Expert Solution
a) Dividend @ 50% of earnings :
| Year | Dividend |
| 1 | = $1,70,00,000 * 50% = $85,00,000 |
| 2 | =$2,00,00,000 * 50% = $1,00,00,000 |
| 3 |
=$1,80,00,000 * 50% = $90,00,000 |
| 4 | = $2,20,00,000 * 50% = $1,10,00,000 |
| 5 | =$2,40,00,000 * 50% = $1,40,00,000 |
b) Dividend $0.50 per share & 60% over $1,90,0000:
| Year | Dividend $0.50/ share | Dividend @ 60% over $1,90,00,000 | Total Dividend |
| 1 | =73,00,000 shares * $0.50 / share = $36,50,000 | Nil as earnings are less than limits | $36,50,000 |
| 2 | $36,50,000 | =60% * ($2,00,00,000 - $1,90,00,000) = $12,00,000 | $48,50,000 |
| 3 | $36,50,000 | Nil as earnings are less than limits | $36,50,000 |
| 4 | $36,50,000 | = 60% * ($2,20,00,000 - $1,90,00,000) = $18,00,000 | $54,50,000 |
| 5 | $36,50,000 | = 60% * ($2,40,00,000 - $1,90,00,000) = $30,00,000 | $66,50,000 |
c) Dividend payout ratio 45% of earnings:
| Year | Dividend |
| 1 | =$1,70,00,000 * 45% = $76,50,000 |
| 2 | =$2,00,00,000 * 45% = $90,00,000 |
| 3 | =$1,80,00,000 * 45% = $81,00,000 |
| 4 | =$2,20,00,000 * 45% = $99,00,000 |
| 5 | =$2,40,00,000 * 45% = $1,08,00,000 |
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