(dividend policies) The earnings for Crystal Cargo Inc. have been predicted for
ID: 2666713 • 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. Determinethe 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. Remember to complete all parts of the problem and report the results of your analysis.
Explanation / Answer
A: Constant pay out ratio of 50%: D1 = $1400000*0.50 /(NNN) NNN-NNNN= $0.70 per share D2 = $2000000*0.50 /(NNN) NNN-NNNN= $1.00 per share D1 = $1860000*0.50 /(NNN) NNN-NNNN= $0.93 per share D1 = $900000*0.50 /(NNN) NNN-NNNN= $0.45 per share D1 = $2800000*0.50 /(NNN) NNN-NNNN= $1.40 per share B) A stable dollar dividend targeted at 50% of the earnings over the 5-year period Target dividend = $8960000*0.50 / 5 years = $896000 /(NNN) NNN-NNNN= 0.896 per share C) A Small, regular dividend of $0.50 per share plus a year-end extra when the profits in any year exceeds $1,500,000. D1 = $0.50 D2 = $0.50 + ($2000000 - $1500000)*0.50 /(NNN) NNN-NNNN= $1.00 per share = $0.75 D3 = $0.50 + ($1860000 - $1500000)*0.50 /(NNN) NNN-NNNN= $1.00 per share = $0.68 D4 = $0.50 D5 = $0.50 + ($2800000 - $1500000)*0.50 /(NNN) NNN-NNNN= $1.00 per share = $1.15
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