(Dividend adjustment model) Regional Software has made a bundle selling spreadsh
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(Dividend adjustment model) Regional Software has made a bundle selling spreadsheet software and has begun paying cash dividends. The firm’s chief financial officer would like the firm to distribute 25% of its annual earnings (POR = 0.25) and adjust the dividend rate to changes in earnings per share at the rate ADJ = 0.75. Regional paid $1.00 per share in dividends last year. It will earn at least $8.00 per share this year and each year in the foreseeable future. Use the dividend adjustment model, Equation (18.1), to calculate projected dividends per share for this year and the next four.• Table 18-1 Dividend changes announced by publicly owned U.S. firms, 1970 to 2004.
Year Number of Firms Paying Dividends Dividend Increased Dividend Resumed Dividend Decreased Dividend Omitted Extra or Special Dividend Declared
1970 About 9,800 828 75 201 284 910
1971 About 9,800 885 111 154 213 841
1972 About 9,800 1,563 107 73 103 980
1973 About 9,800 2,197 116 37 114 1,105
1974 About 9,800 2,120 139 86 228 1,097
1975 About 9,800 1,648 129 186 266 1,013
1976 About 9,800 2,624 137 74 117 1,047
1977 Over 10,000 2,984 120 68 138 968
1978 Over 10,000 3,211 105 46 105 997
1979 Over 10,000 2,968 71 46 131 829
1980 Over 10,000 2,445 51 88 160 719
1981 Over 10,000 2,160 45 103 198 640
1982 Over 10,000 1,590 46 258 315 515
1983 Over 10,000 1,833 66 106 126 480
1984 Over 10,000 1,774 58 65 116 435
1985 Over 10,000 1,560 35 68 139 428
1986 Over 10,000 1,513 46 96 189 359
1987 Over 10,000 1,590 54 74 104 403
1988 Over 10,000 1,705 38 62 117 501
1989 Over 10,000 1,658 41 85 160 524
1990 Over 10,000 1,263 39 143 266 385
1991 Over 10,000 1,086 50 187 250 322
1992 Over 10,000 1,333 53 131 146 317
1993 Over 10,000 1,635 75 87 106 368
1994 Over 10,000 1,826 52 59 77 384
1995 Over 10,000 1,882 51 49 73 358
1996 Over 10,000 2,171 37 50 80 444
1997 Over 10,000 2,139 24 46 49 439
1998 Over 10,000 2,047 17 84 61 425
1999 Over 10,000 1,701 38 62 83 385
2000 Over 10,000 1,438 32 69 75 327
2001 Over 10,000 1,326 19 127 78 329
2002 Over 10,000 1,407 20 79 52 306
2003 Over 10,000 1,692 48 61 38 467
2004 Over 10,000 1,657 31 34 26 414
Total Over 348,600 63,459 2,176 3,244 4,783 20,461
Explanation / Answer
D1 = ADJ [POR(EPS1) - D0] + D0
D1 = 0.75 [0.25 x $8.00 - $1.00] + $1.00 = $1.75
D2 = 0.75 [0.25 x $8.00 - $1.75] + $1.75 = $1.94
D3 = 0.75 [0.25 x $8.00 - $1.94] + $1.94 = $1.985
D4 = 0.75 [0.25 x $8.00 - $1.98] + $1.98 = $2.00
D5 = 0.75 [0.25 x $8.00 - $2.00] + $2.00 = $2.00
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