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Here are several assertions about typical corporate dividend policies

Dividend Policy

1. Here are several assertions about typical corporate dividend policies.
Which of them are true?
Write out a corrected version of any false statements.

mark answer with an x- write a correct statement for false items below chart
a. Most companies set a target dividend payout ratio.
b. They set each year's dividend equal to the target payout ratio times that year's earnings.
c. Managers and investors seem more concerned with dividend changes than dividend levels.
d. Managers often increase dividends temporarily when earnings are unexpectedly high for a year or two.

False statments corrected:

2. For each of the following four groups of companies, state whether you would expect them to distribute:
a relatively high or low proportion of current earnings
a relatively high or low price-earnings ratio.
mark answer with an x

a. High-risk companies.
b. Companies that have recently experienced a temporary decline in profits.
c. Companies that expect to experience a decline in profits.
d. "Growth" companies with valuable future investment opportunities.

mark answer with an x

a. High-risk companies.
b. Companies that have recently experienced a temporary decline in profits.
c. Companies that expect to experience a decline in profits.
d. "Growth" companies with valuable future investment opportunities.

Solution Preview

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a. What is the expected dividend in each of the next 3 years?
Year Dividend
1 $1.040 D1= D0(1+g) where D1= next years dividend, D0= current year dividend, g= ...

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