Delta Corporation earned $2.50 per share during fiscal year 2008 and paid cash d

Question

Delta Corporation earned $2.50 per share during fiscal year 2008 and paid cash dividends of $1.00/share. During the fiscal year that just ended on Dec 31, 2009, Delta earned $3.00/share, and the firm's managers expect to earn this amount per share during fiscal years 2010 and 2011, as well.

It delta's managers want to follow a constant nominal dividend policy, what dividend per share will they declare for the fiscal year 2009?

If delta's managers want to follow a constant payout ratio dividend policy, what dividend per share will they declare for fiscal year 2010?

Explanation / Answer

What was Deltas payout ratio for fiscal year 2008? 1/2.5 = 0.40 If Deltas managers want to follow a constant nominal dividend policy, what dividend per share will they declare for fiscal year 2009? 1.00 If Deltas managers want to follow a constant payout ratio dividend policy, what dividend per share will they declare for fiscal year 2010? 3.00 x 0.40 =1.2

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