Boehm Corporation has had stable earnings growth of 9% a year for the past 10 years and in 2018 Boehm paid dividends of $3.7 million on net income of $12.7 million. However, in 2019 earnings are expected to jump to $17.4 million, and Boehm plans to invest $9.398 million in a plant expansion. This one-time unusual earnings growth won't be maintained, though, and after 2019 Boehm will return to its previous 9% earnings growth rate. Its target debt ratio is 35%. Boehm has 1 million shares of stock. a. Calculate Boehm's dividend per share for 2019 under each of the following policies: 1. Its 2019 dividend payment is set to force dividends per share to grow at the long-run growth rate in earnings. Round your answer to the nearest dollar. 2. It continues the 2018 dividend payout ratio. Round intermediate calculations to four decimal places. Round your answer to the nearest dollar. 3. It uses a pure residual policy with all distributions in the form of dividends (35% of the $9.398 million investment is financed with debt). Round your answer to the nearest dollar. $ 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. What will the extra dividend be? Round your answer to the nearest dollar.
Boehm Corporation has had stable earnings growth of 9% a year for the past 10 years and in 2018 Boehm paid dividends of $3.7 million on net income of $12.7 million. However, in 2019 earnings are expected to jump to $17.4 million, and Boehm plans to invest $9.398 million in a plant expansion. This one-time unusual earnings growth won't be maintained, though, and after 2019 Boehm will return to its previous 9% earnings growth rate. Its target debt ratio is 35%. Boehm has 1 million shares of stock. a. Calculate Boehm's dividend per share for 2019 under each of the following policies: 1. Its 2019 dividend payment is set to force dividends per share to grow at the long-run growth rate in earnings. Round your answer to the nearest dollar. 2. It continues the 2018 dividend payout ratio. Round intermediate calculations to four decimal places. Round your answer to the nearest dollar. 3. It uses a pure residual policy with all distributions in the form of dividends (35% of the $9.398 million investment is financed with debt). Round your answer to the nearest dollar. $ 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. What will the extra dividend be? Round your answer to the nearest dollar.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter15: Distributions To Shareholders: Dividends And Repurchases
Section: Chapter Questions
Problem 10P
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Transcribed Image Text:Boehm Corporation has had stable earnings growth of 9% a year for the past 10 years and in 2018 Boehm paid dividends of $3.7 million on net income of $12.7 million. However, in 2019
earnings are expected to jump to $17.4 million, and Boehm plans to invest $9.398 million in a plant expansion. This one-time unusual earnings growth won't be maintained, though, and after
2019 Boehm will return to its previous 9% earnings growth rate. Its target debt ratio is 35%. Boehm has 1 million shares of stock.
a. Calculate Boehm's dividend per share for 2019 under each of the following policies:
1. Its 2019 dividend payment is set to force dividends per share to grow at the long-run growth rate in earnings. Round your answer to the nearest dollar.
$
2. It continues the 2018 dividend payout ratio. Round intermediate calculations to four decimal places. Round your answer to the nearest dollar.
$
3. It uses a pure residual policy with all distributions in the form of dividends (35% of the $9.398 million investment is financed with debt). Round your answer to the nearest
dollar.
2$
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. What will the extra dividend be? Round your answer to the nearest dollar.
$
b. Which of the preceding policies would you recommend?
-Select- v
c. Does a 2019 dividend of $9 million seem reasonable in view of your answers to parts a and b? If not, should the dividend be higher or lower?
I. Yes. As a regular dividend it should be equal to $9 million.
II. No. As a regular dividend it should be lower than $9 million.
III. No. As a regular dividend it should be higher than $9 million.
-Select- v
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