In 2011 the Keenan Company paid dividends totaling $3,760,000 on net income of $
ID: 2707863 • Letter: I
Question
In 2011 the Keenan Company paid dividends totaling $3,760,000 on net income of $15 million. Note that 2011 was a normal year and for the past 10 years, earnings have grown at a constant rate of 6%. However, in 2012, earnings are expected to jump to $19.5 million and the firm expects to have profitable investment opportunities of $10.8 million. It is predicted that Keenan will not be able to maintain the 2012 level of earnings growth because the high 2012 earnings level is attributable to an exceptionally profitable new product line introduced that year. After 2012, the company will return to its previous 6% growth rate. Keenan's target capital structure is 40% debt and 60% equity.
Regular-dividend $ Extra dividend $Explanation / Answer
In 2011 the Keenan Company paid dividends totaling $3,760,000 on net income of $15 million. Note that 2011 was a normal year and for the past 10 years, earnings have grown at a constant rate of 6%. However, in 2012, earnings are expected to jump to $19.5 million and the firm expects to have profitable investment opportunities of $10.8 million. It is predicted that Keenan will not be able to maintain the 2012 level of earnings growth because the high 2012 earnings level is attributable to an exceptionally profitable new product line introduced that year. After 2012, the company will return to its previous 6% growth rate. Keenan's target capital structure is 40% debt and 60% equity.
Calculate Keenan's total dividends for 2012 assuming that it follows each of the following policies: (Write out your answers completely. For example, 25 million should be entered as 25,000,000.)
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