Southern Cities Trucking Company has the following? five-year record of earnings

Question

Southern Cities Trucking Company has the following? five-year record of earnings per share displayed below. Which of the following procedures would produce higher dividends to stockholders over this? five-year period? ?(Click on the icon located on the? top-right corner of the data table below in order to copy its contents into a? spreadsheet.) Year EPS 2012 ?$1.35 2013 2.04 2014 0.91 2015 2.91 2016 0.69 a. Paying out dividends at a fixed ratio of 33?% of EPS. b. Paying out dividends at a fixed rate of ?$0.91 per share.

If they pay out dividends at a fixed ratio of

3333?%

of? EPS, the total of the dividends over the? 5-year period is

?$nothing.

Explanation / Answer

Evaluation of option a)

Evaluation of option b)

Annual fixed dividend = $ 0.91 per share

Total dividend for 5 years = 0.91 x 5

= $ 4.55

Since total dividends in option b) are more than total dividens in option a), hence option b) must be chosen by the company to produce higher dividends to the shareholders.

Year EPS Dividend 2012 1.35 1.35 x 0.3333 = 0.45 2013 2.04 2.04 x 0.3333 = 0.68 2014 0.91 0.91 x 0.3333 = 0.303 2015 2.91 2.91 x 0.3333 = 0.969 2016 0.69 0.69 x 0.3333 = 0.23 Total = 2.63

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