Question

# FIN 210 Alternative dividend policies: Given the earnings per share over the period 2012​-2019 shown in...

FIN 210

Alternative dividend policies:

Given the earnings per share over the period 2012​-2019 shown in the following​ table, determine the annual dividend per share under each of the policies set forth in parts a throughd.

1. Pay out 60​% of earnings in all years with positive earnings.
2. Pay \$0.50 per share and increase to \$0.70 per share whenever earnings per share rise above \$1.10 per share for two consecutive years.
3. Pay \$0.50 per share except when earnings exceed \$1.20 per​ share, in which case pay an extra dividend of 70​% of earnings above \$1.20 per share.
4. Combine policies in parts b and c. When the dividend is raised​ (in part b​), raise the excess dividend base​ (in part c​) from \$1.20 to \$1.30 per share.
5. Compare and contrast each of the dividend policies described in parts a throughd.
 Year EPS 2019 \$1.38 2018 \$1.69 2017 \$1.02 2016 \$-0.73 2015 \$1.07 2014 \$0.53 2013 \$0.99 2012 \$0.36

Which policy uses a​ constant-payout ratio?

1. The policy described in part c is a​ constant-payout ratio which will yield low or no dividends if earnings decline or a loss occurs.
2. The policy described in part d is a​ constant-payout ratio which will yield low or no dividends if earnings decline or a loss occurs.
3. The policy described in part b is a​ constant-payout ratio which will yield low or no dividends if earnings decline or a loss occurs
4. The policy described in part a is a​ constant-payout ratio which will yield low or no dividends if earnings decline or a loss occurs.

Which policy uses a regular​ dividend?

1. Policy described in part b uses a regular dividend policy which minimizes the​ owners' uncertainty of earnings.
2. Policy described in part c uses a regular dividend policy which minimizes the​ owners' uncertainty of earnings.
3. Policy described in part a uses a regular dividend policy which minimizes the​ owners' uncertainty of earnings.
4. Policy described in part d uses a regular dividend policy which minimizes the​ owners' uncertainty of earnings

Which policy uses a​ low-regular-and-extra dividend​ policy?

1. Policy described in part a uses a​ low-regular-and-extra policy giving investors a stable income.
2. Policy described in part d uses a​ low-regular-and-extra policy giving investors a stable income.
3. Policy described in part c uses a​ low-regular-and-extra policy giving investors a stable income.
4. Policy described in part b uses a​ low-regular-and-extra policy giving investors a stable income

Which policy provides the stability of a regular dividend but allows for future dividend​ growth

1. Policy described in part a provides the stability of a regular dividend but allows for larger future growth of dividends.
2. Policy described in part d provides the stability of a regular dividend but allows for larger future growth of dividends.
3. Policy described in part b provides the stability of a regular dividend but allows for larger future growth of dividends.
4. Policy described in part c provides the stability of a regular dividend but allows for larger future growth of dividends.

#### Homework Answers

Answer #1
 Year E P S Part A Part B Part C Part D 2012 0.36 0.216 0.5 0.5 0.5 2013 0.99 0.594 0.5 0.5 0.5 2014 0.53 0.318 0.5 0.5 0.5 2015 1.07 0.642 0.5 0.5 0.5 2016 - 0.73 0 0.5 0.5 0.5 2017 1.02 0.612 0.5 0.5 0.5 2018 1.69 1.014 0.5 0.5 + .7 (1.69-1.2) =0.843 0.5 2019 1.38 0.828 0.7 0.5 + 0.7 (1.38- 1.2) =0.626 0.7 + 0.7 (1.38 - 1.3) =0.756 Dividend policy Constant payout ratio Regular dividend low regular and extra dividend policy regular dividend plus large future growth
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