13-1. ( Dividend policies ) Final earnings estimates for Chilean Health Spa & Fi

Question

13-1. (Dividend policies) Final earnings estimates for Chilean Health Spa & Fitness Center have been prepared for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock outstanding. As assistant to the CFO, you are asked to determine the yearly dividend per share to be paid depending on the following possible policies:

YEAR

PROFITS AFTER TAXES

1

$ 18,000,000

2

  21,000,000

3

  19,000,000

4

  23,000,000

5

  25,000,000

YEAR

PROFITS AFTER TAXES

1

$ 18,000,000

2

  21,000,000

3

  19,000,000

4

  23,000,000

5

  25,000,000

Explanation / Answer

Hi,

Please find the answers as follows:

1) = 40 (18+21+19+23+25)= 42.4/5= 8.48/7.5 = 1.13 per share

2)

Year1 = .60
Year2 =.60 +.5/7.5= .67 per share
Year3 = .60
Year4 = .60 +1.5/7.5= .80 per share
Year5 =.60 +2.5/7.5= .93 per share

3)

Year1 = 8*.4/7.5= 0.96 per share
Year2 = 21*.4/7.5= 1.12 per share
Year3 = 19*.4/7.5= 1.01 per share
Year4 = 23*.4/7.5= 1.23 per share
Year5 = 25*.4/7.5= 1.33 per share

Thanks.

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