Purchase Solution

Dividend policies stable earnings

Not what you're looking for?

Ask Custom Question

14-1
Puckett Products is planning for a $5 million in capital expenditures next year. Puckett's target capital structure consists of 60% debt and 40% equity. If net income next year is $3 million and Puckett follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio?
14-4
A firm has $10 million shares outstanding with a market price of $20 per share. The firm has $25 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt. What is the firm's value of operations, and how many shares will remain after purchase?
14-5
JPix management is considering a stock split. JPix currently sells for $120 per share and a 3-for-2 stock split is contemplated. What will be the company's stock price following the stock split, assuming that the split has no effect on the total market value of JPix's equity?
14-6
Gardial GreenLights, a manufacturer of energy-efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $15 million investment in new machinery. Gardial plans to maintain its current 30% debt-to-total-assets ratio for its capital structure and to maintain its dividend policy in which at the end of each year it distributes 55% of the year's net income. This year's net income was $8 million. How much external equity must Gardial seek now to expand as planned?
14-10
Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8 million. However, in 2014 earnings are expected to jump to 12.6 million, and Boehm plans to invest $7.3 million in a plant expansion. This one-time unusual earnings growth won't be maintained, though, and after 2014 Boehm will return to its previous 8% earnings growth rate. Its target debt ratio is 35%.
a. Calculate Boehm's total dividends or 2014 under each of the following policies:
1. Its 2014 dividend payment is set to force dividends to grow at the long-run growth rate in earnings.
2. It continues the 2013 dividend payout ratio.
3. It uses a pure residual policy with all distributions in a form of dividends (35% of the $7.3 million investment is financed with debt).
4. It employs a regular-dividend-plus-extras policy, with the regular dividend being based on the long-run growth rate and the extra dividend being set according to the residual policy.
b. Which of the preceding policies would you recommend? Restrict your choices to the ones listed, but justify your answer.
c. Does a 2014 dividend of $9 million seem reasonable in view of your answers to part a and b? If not, should the dividend be higher or lower?

Purchase this Solution
Solution Summary

Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013

Solution provided by:
Radhika Lakshmi, MPhil
Education
  • MPhil, Madurai Kamaraj University
  • MCom, Annamalai University
  • IATA, International Air Transport Association
Recent Feedback
  • "Great explanations on how the answers were obtained."
  • "Love the way she explains everything step by step."
  • "Solutions were thoroughly explained."
  • "Excellent explanations of how problems are solved"
  • "Thanks"
Purchase this Solution
Free BrainMass Quizzes
Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Operations Management

This quiz tests a student's knowledge about Operations Management

View More Free Quizzes
Related BrainMass Solutions

  • Dividend policy

    Managers often increase dividends temporarily when earnings are unexpectedly high for a year or two. Dividend Policy. Here are several assertions about typical corporate dividend policies. Which of them are true?

  • Leverage and value of investments

    What dividend policies should it consider? How do you think this would reflect in the value of the company? Supposing the Google wants to attract more long term investors, a stable dividend policy is most appropriate.

  • Multiple Choice - Modigliani and Miller

    Question - Which of the following statements about dividend policies is CORRECT? Answer - The clientele effect suggests that companies should follow a stable dividend policy.

  • Flotation costs and dividend policies

    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.)

  • Crystal Cargo Inc.

    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.

  • Dividend Payout

    Question 1: constant dividend payout ratio of 40 percent Question 2: stable dollar dividend targeted at 40 percent of the earnings over the 5 year period.

  • Value of WACC; dividend policies

    These include Stable Dividend per share policy, Constant dividend payout ratio and Residual Dividend policy.

  • Financial Analysis: Dividend Policy

    84053 Financial Analysis: Dividend Policy 1. Dividend Policy. Here are several assertions about typical corporate dividend policies. Which of them are true? Write out a corrected version of any false statements.

  • What factors should determine dividend policy?

    With the stability policy, companies may choose a cyclical policy that sets dividends at a fixed fraction of quarterly earnings, or they may choose a stable policy whereby quarterly dividends are set at a fraction of yearly earnings.

View More Related Solutions