Alternative dividend policies Over the last 10 years, a firm has had the earning

Question

Alternative dividend policies Over the last 10 years, a firm has had the earnings per share shown in the following table: If the firm's dividend policy were based on a constant payout ratio of 40% for all years with positive earnings and 0% otherwise, what would be the annual dividend for 2010? If the firm had a dividend payout of $1.00 per share, increasing by $0.10 per share whenever the dividend payout fell below 50% for two consecutive years, what annual dividend would the firm pay in 2010? If the firm's policy were to pay $0.50 per share each period except when earnings per share exceed $3.00, when an extra dividend equal to 80% of earnings beyond $3.00 would be paid, what annual dividend would the firm pay in 2010? Discuss the pros and cons of each dividend policy described in parts a through c. If the firm's dividend policy were based on a constant payout ratio of 40% for (Round to the nearest cent.)

Explanation / Answer

a) Dividend per share = EPS x Payout Ratio
DPS 2010 = $2.79 x 40% = $1.12
b) DPS is $1 in 2010 as firm payout ratios didn't fall 50% of payout ratio for two consecutive years.
c) In 2010 EPS is $2.79 ,it doesn't satisfy the condition of $3 EPS ,in that case DPS in 2010 is $.50.

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