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# Crystal Cargo Inc.

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1)The earnings for Crystal Cargo Inc. have been predicted for the next 5 years and are as follows. There is 1 million shares outstanding. Determine the yearly dividend per share to be paid if the following policies are enacted:

a. A constant dividend payout ratio of 50 percent.
b. A stable dollar dividend targeted at 50 percent of the earnings over the 5 year period.
c. A small, regular dividend of \$0.50 per share plus a year-end extra when the profits in any year exceed \$1,500,000. The year-end extra dividend will equal 50 percent of profits exceeding \$1,500,000.

YEAR Profits After Taxes

1 \$1,400,000
2 2,000,000
3 1,860,000
4 900,000
5 2,800,000

2) You have developed the following income statement for the Hugo Boss Corporation. It represents the most recent year's operations, which ended yesterday.

Sales \$50,349,375
Variable Costs (25,137,000)
Revenue before fixed costs \$25,302,375
Fixed Costs (10,143,000)
EBIT \$15,159,375
Interest Expense (1,488,375)
Earnings before taxes \$ 13,671,000
Taxes at 50% (6,835,500)
Net Income \$ 6,835,500

If sales should increase by 30 percent, by what percent would earnings before taxes (and net income)increase.

#### Solution Preview

Financial management
1)The earnings for Crystal Cargo Inc. have been predicted for the next 5 years and are as follows. There is 1 million shares outstanding. Determine the yearly dividend per share to be paid if the following policies are enacted:

a. A constant dividend payout ratio of 50 percent.
b. A stable dollar dividend targeted at 50 percent of the earnings over the 5 year period.
c. A small, regular dividend of \$0.50 per share plus a year-end extra when the profits in any year exceed \$1,500,000. The year-end extra dividend will equal 50 percent of profits exceeding \$1,500,000.

YEAR Profits After Taxes Earnings per share (EPS)

1 \$1,400,000 1.40
2 2,000,000 2.00
3 1,860,000 1.86
4 ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer the financial management questions.

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