(Alternative dividend policies) Final earnings estimates for the Smithfield Meat Packing Company have been prepared for the CFO of the company and are shown in the
following table: The firm has 7,700,000 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:
a. A stable dollar dividend targeted at 60 percent of earnings over a 5-year period.
b. A small, regular dividend of $0.60 per share plus a year-end extra when the profits in any year exceed $19,000,000. The year-end extra dividend will equal 70 percent of
profits exceeding $19,000,000.
c. A constant dividend payout ratio of 40 percent.
2
$0.69
(Round to the nearest cent.)
YEAR
DIVIDEND
3
$0.60
(Round to the nearest cent.)
YEAR
DIVIDEND
4
$ 0.87
(Round to the nearest cent.)
YEAR
DIVIDEND
5
$ 1.05
(Round to the nearest cent.)
c. Determine the yearly dividend per share that will be paid assuming a constant dividend payout ratio of 40 ercent.
YEAR
DIVIDEND
1
$0.88
(Round to the nearest cent.)
YEAR
2
DIVIDEND
$
(Round to the nearest cent.)
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