A firm has had the indicated earnings per share over the last three years. Year

Question

A firm has had the indicated earnings per share over the last three years.
Year EPS
2003 $3.00
2002 $2.00
2001 $1.00
a. If the firm's dividend policy was based on a constant payout ratio of 50 percent, determine the annual dividend for each year.
(insert answer here)
If the firm's dividend policy was based on a fixed dollar payout policy of 50 cents per share plus an extra dividend equal to 75 percent of earnings per share above $1.00, determine the annual dividend for each year
(insert answer here)

Explanation / Answer

a. payout ratio= DPS/EPS since payout is 50% DPS in 2003= 3x.5= $1.5 DPS in 2004= 2x.5= $1 DPS in 2005= 1x.5= $.5 b. DPS in 2003= 3x.5+.75x2= $3 DPS in 2004= 2x.5+ .75x1= $2.75 DPS in 2005= 1x.5= $.5

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