Delta Corps earned $2.50 per share during fiscal year 2011 and paid cash dividen

Question

Delta Corps earned $2.50 per share during fiscal year 2011 and paid cash dividends of $1.00 per share. During the fiscal year that just ended on December 31, 2012, Delta earned $3.00 per share, and the firm's managers expect to earn this amount per share during fiscal years 2013 and 2014, as well. A. What was Delta's payout ratio for fiscal year 2011? B. If Delta's managers want to follow a constant nominal dividend policy, what dividend per share will they declare for fiscal year 2012? C. If Delta's managers want to follow a constant payout ratio dividend policy, what dividend per share will they declare for fiscal year 2012? D. If Delta's managers want to follow a partial-adjustment strategy, with a target payout ratio equal to FY 2008's, how could they change dividend payments during 2012, 2013, 2014?

Explanation / Answer

A) payout ratio is 1/2.5 = 2/5 = 0.4

B) the dividend for 2012 would be 1$

C) the dividend would be 3 * 0.4 = 1.2$

D) the dividend would be 1$, 1.2$, 1.2$

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