(Dividend Policies) The earnings for Crystal Cargo Inc. have been predicted for
ID: 2664030 • Letter: #
Question
(Dividend Policies) The earnings for Crystal Cargo Inc. have been predicted for the next 5 years and are as follows. There are 1 million shares outstanding. Determine the yearly dividend per share to be paid if the following policies are enacted:a. A constant dividend payout ratio of 50%
b. A stable dollar dividend targeted at 50% of the earnings over the 5 year period
c. A small, regular dividend of $0.50 per share plus a year-end extra when the profits in any year exceed $1,500,000. The year-end extra dividend will equal 50% of profits exceeding $1,500,000.
__________________________________________________________
Year Profits after Taxes
1 $1,400,000
2 2,000,000
3 1,860,000
4 900,000
5 2,800,000
__________________________________________________________
Explanation / Answer
a. A constant dividend payout ratio of 50%. No of shares = 1M Div per share = PAT/No of shares Year Profits after Taxes 1 $1,400,000. DIv per share = 50%*(1400,000/1000,000) = $0.70 per share 2 2,000,000 DIv per share = 50%*(2000,000/1000,000) = $1 per share 3 1,860,000 DIv per share = 50%*(1860,000/1000,000) = $0.93 per share 4 900,000 DIv per share = 50%*(900,000/1000,000) = $0.45 per share 5 2,800,000 DIv per share = 50%*(2800,000/1000,000) = $1.40 per share b. A stable dollar dividend targeted at 50% of the earnings over the 5 year period __________________________________________________________ Year Profits after Taxes 1 $1,400,000. DIv per share = 50%*(1400,000/1000,000) = $0.70 per share 2 2,000,000 DIv per share = 50%*(2000,000/1000,000) = $1 per share 3 1,860,000 DIv per share = 50%*(1860,000/1000,000) = $0.93 per share 4 900,000 DIv per share = 50%*(900,000/1000,000) = $0.45 per share 5 2,800,000 DIv per share = 50%*(2800,000/1000,000) = $1.40 per share __________________________________________________________ c. A small, regular dividend of $0.50 per share plus a year-end extra when the profits in any year exceed $1,500,000. The year-end extra dividend will equal 50% of profits exceeding $1,500,000. __________________________________________________________ Year Profits after Taxes 1 $1,400,000 Yearly DIv per share = $0.50 2 2,000,000 Yearly DIv per share = $0.50 + (2000,000-1500,000)*0.50/1M = $0.75 3 1,860,000 Yearly DIv per share = $0.50 + (1860,000-1500,000)*0.50/1M = $0.68 4 900,000 Yearly DIv per share = $0.50 5 2,800,000 $0.50 + (2800,000-1500,000)*0.50/1M = $1.15 __________________________________________________________
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