Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 14, Problem 14.8P

Alternative dividend policies Given the earnings per share over the period 201 2-2019 shown in the following table, determine the annual dividend per share under each of the policies set forth in parts a through d.

Year Earnings per share
2019 $1.40
2018 1.56
2017 1.20
2016 0.85
2015 1.05
2014 0.60
2013 1.00
2012 0.44
  1. a. Pay out 50% of earnings in all years with positive earnings.
  2. b. Pay $0.50 per share and increase to $0.60 per share whenever earnings per share rise above $0.90 per share for 2 consecutive years.
  3. c. Pay $0.50 per share except when earnings exceed $1.00 per share, in which case pay an extra dividend of 60% of earnings above $1.00 per share.
  4. d. Combine the policies described in parts b and c. When the dividend is raised (in part b), raise the excess dividend base (in part c) from $1.00 to $1.10 per share.
  5. e. Compare and contrast each of the dividend policies described in parts a through d.
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