Final earnings estimate for Alltime Fitness Center have been prepared for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock outstanding. As assistant to the CFO, you are asked to determine the yearly dividend per share to be paid depending on the
Final earnings estimate for Alltime Fitness Center have been prepared for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock outstanding. As assistant to the CFO, you are asked to determine the yearly dividend per share to be paid depending on the
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Final earnings estimate for Alltime Fitness Center have been prepared for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock outstanding. As assistant to the CFO, you are asked to determine the yearly dividend per share to be
paid depending on the following possible policies:
- A stable dollar dividend targeted at 40 percent of earnings over a 5-year period.
- A small, regular dividend of $0.60 per share plus a year-end extra when the profits in any year exceed $20 million. The year-end extra dividend will equal 50 percent of profits exceeding $20 million.
- A constant dividend payout ratio of 40 percent.
|
Year |
Profit after tax ($’million) |
|
1 |
18 |
|
2 |
21 |
|
3 |
19 |
|
4 |
23 |
|
5 |
25 |
Explain the pros and cons of each dividend policie
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