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Payout Ratio

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Can someone please show me how to do part d? I am not sure how to tackle that part.

Delta Corporation earned $ 2.50 per share during fiscal year 2008 and paid cash dividends of $ 1.00 per share. During the fiscal year that just ended on December 31, 2009, Delta earned $ 3.00 per share, and the firms managers expect to earn this amount per share during fiscal years 2010 and 2011, as well.

a. What was Deltas payout ratio for fiscal year 2008?
b. If Deltas managers want to follow a constant nominal dividend policy, what dividend per share will they declare for fiscal year 2009?
c. If Deltas managers want to follow a constant payout ratio dividend policy, what dividend per share will they declare for fiscal year 2010?
d. If Deltas managers want to follow a partial- adjustment strategy, with a target payout ratio equal to FY 2008 s, how could they change dividend payments during 2009, 2010, and 2011?

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Solution Preview

EPS in 2008 = $2.50
DPS in 2008 = $1.00
EPS in 2009 = $3.00
Expected EPS in year 2010 = $3.00
Expected EPS in year 2011 = $3.00
a) Payout ratio in year 2008 = DPS in 2008/EPS in 2008 = $1.00/$2.50 = 0.40 or 40%

b) DPS in 2008 = $1.00 Under the constant nomimal dividend ...

Solution Summary

Formula under target payout ratio is applied.

$2.19
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