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Earnings History

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A firm has had the following earnings history over the last 5 years:

year Earnings per share

1999 $2.50
1998 $2.00
1997 $1.75
1996 $1.25
1995 -$1.00

If the firm's dividend policy was to pay $0.25 per share each period except when earnings exceed $1.50, when an extra dividend equal to 50 percent of earnings above $1.50 would be paid, the annual dividends for 1996 and 1999 were _____

$0.25 and $1.25 respectively, $0.25 and $0.75 respectively, $0 and $0.25 respectively, or $0.25 and $0.25, respectively

Please advise answer & why.

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The solution discusses the earnings history.

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