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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.

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    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 ...

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