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

jeff jeffy answered 1 year ago
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