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1 2 3 4 5 Thereafter Earnings 100 125 150 120 140 150+ Discretionary 50 70 60 20

ID: 2662810 • Letter: 1

Question

                        1      2      3      4      5         Thereafter Earnings            100   125   150   120   140      150+ Discretionary       50    70     60   20      15       50+ Cash Flow         ___________________________________ A firm has 20 million common shares outstanding. It durrently pays out $150 per share per year in cash dividends on its common stock. Historically its payout ratio has ranged from 30% to 35%. Over the next five years it expects the earnings and discretionary cash flow shown below in millions. a. Over the five-year period, what is the maximum overall payout ratio the firm could achieve without triggering a securities issue? b. Recommend a rasonable dividend policy for paying out discrtionary cash flow in years 1 though 5.                         1      2      3      4      5         Thereafter Earnings            100   125   150   120   140      150+ Discretionary       50    70     60   20      15       50+ Cash Flow         ___________________________________ A firm has 20 million common shares outstanding. It durrently pays out $150 per share per year in cash dividends on its common stock. Historically its payout ratio has ranged from 30% to 35%. Over the next five years it expects the earnings and discretionary cash flow shown below in millions. a. Over the five-year period, what is the maximum overall payout ratio the firm could achieve without triggering a securities issue? b. Recommend a rasonable dividend policy for paying out discrtionary cash flow in years 1 though 5. Earnings            100   125   150   120   140      150+ Discretionary       50    70     60   20      15       50+ Cash Flow         ___________________________________ A firm has 20 million common shares outstanding. It durrently pays out $150 per share per year in cash dividends on its common stock. Historically its payout ratio has ranged from 30% to 35%. Over the next five years it expects the earnings and discretionary cash flow shown below in millions. a. Over the five-year period, what is the maximum overall payout ratio the firm could achieve without triggering a securities issue? b. Recommend a rasonable dividend policy for paying out discrtionary cash flow in years 1 though 5.

Explanation / Answer

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