The Sharpe Co. just paid a dividend of $1.80 per share of stock. Its target payout ratio is 38 percent. The company expects to have an earnings per share of $4.35 one year from now.
If the adjustment rate is .45 as defined in the Lintner model, what is the dividend one year from now? Round your answer to 3 decimal places. (e.g., 32.161))
Dividend : $ _________
Question # 2:
If the adjustment rate is .75 instead, what is the dividend one year from now? . Round your answer to 3 decimal places. (e.g., 32.161)
Dividend : $________
Question # 3:
Which adjustment rate is more conservative? Higher Adjustment or Lower Adjustment?
This solution illustrates how to use the Lintner Dividend Adjustment Factor to determine a future year's dividends.