Excel Online Structured Activity: Dividend PolicyBoehm Corporation has had stable earnings growth of 10% a year for the past 10 years, and in 2015 Boehm paid dividends of $3.4 million on net incomeof $12.5 million. However, in 2016 earnings are expected to jump to $17.5 million, and Boehm plans to invest $9.5 million in a plant expansion. This one-time unusual earnings growth won't be maintained, though, and after 2016 Boehm will return to its previous 10% earnings growth rate. Its target debtratio is 35%.The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questionsbelow.Open spreadsheeta. Calculate Boehm's total dividends for 2016 under each of the following policies. Enter your answers in dollars. For example: $2.9 million should beentered as $2,900,000. Do not round intermediate calculations. Round your answers to the nearest dollar.1. Its 2016 dividend payment is set to force dividends to grow at the long-run growth rate in earnings.$2. It continues the 2015 dividend payout ratio.$

The dividend can be defined as the distribution of earnings to the shareholders of the company. The…

Answered: Excel Online Structured Activity:…

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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ALTERNATIVE DIVIDEND POLICIES In 2018, Keenan Company paid dividends totaling 3,600,000 on net income of 10.8 million. Note that 2018 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 10%. However, in 2019, earnings are expected to jump to 14.4 million and the firm expects to have profitable investment opportunities of 8.4 million. It is predicted that Keenan will not be able to maintain the 2019 level of earnings growth because the high 2019 earnings level is attributable to an exceptionally profitable new product line introduced that year. After 2019, the company will return to its previous 10% growth rate. Keenans target capital structure is 40% debt and 60% equity. a. Calculate Keenans total dividends for 2019 assuming that it follows each of the following policies: 1. Its 2019 dividend payment is set to force dividends to grow at the long-run growth rate in earnings. 2. It continues the 2018 dividend payout ratio. 3. It uses a pure residual dividend policy (40% of the 8.4 million investment is financed with debt and 60% with common equity). 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 dividend policy. b. Which of the preceding policies would you recommend? Restrict your choices to the ones listed but justify your answer. c. Assume that investors expect Keenan to pay total dividends of 9,000,000 in 2019 and to have the dividend grow at 10% after 2019. The stocks total market value is 180 million. What is the companys cost of equity? d. What is Keenans long-run average return on equity? [Hint: g = Retention rate ROE = (1.0 Payout rate)(ROE)] e. Does a 2019 dividend of 9,000,000 seem reasonable in view of your answers to parts c and d? If not, should the dividend be higher or lower? Explain your answer.
ALTERNATIVE DIVIDEND POLICIES In 2014, Keenan Company paid dividends totaling 3,600,000 on net income of 10.8 million. Note that 2014 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 10%. However, in 2015, earnings are expected to jump to 14 4 million and the firm expects to have profitable investment opportunities of 8 4 million. It is predicted that Keenanwill not be able tomaintain the 2015 level of earnings growth because the high 2015 earnings level is attributable to an exceptionally profitable new product line introduced that year. After 2015, the company will return to its previous 10% growth rate. Keenans target capital structure is 40% debt and 60% equity. a. Calculate Keenans total dividends for 2015 assuming that it follows each of the following policies: 1. Its 2015 dividend payment is set to force dividends to grow at the long-run growth rate in earnings. 2. It continues the 2014 dividend payout ratio. 3. It uses a pure residual dividend policy (40% of the 8 4 million investment is financed with debt and 60% with common equity). 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 dividend policy. b. Which of the preceding policies would you recommend? Restrict your choices to the ones listed but justify your answer. c. Assume that investors expect Keenan to pay total dividends of 9,000,000 in 2015 and to have the dividend grow at 10% after 2015. The stocks total market value is 180 million. What is the companys cost of equity? d. What is Keenans long-run average return on equity? [Hint: g = Retention rate ROE =(1 0 Payout rate) (ROE).] e. Does a 2015 dividend of 9,000,000 seem reasonable in view of your answers to parts c and d? If not, should the dividend be higher or lower? Explain your answer.
Morrissey Technologies Inc.’s 2015 financial statements are shown here. Suppose that in 2016, sales increase by 10% over 2015 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2015 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its operating costs/sales ratio to 87.5% and increase its totalliabilities-to-assets ratio to 30%. (It believes its liabilities-to-assets ratio currently is too low relative to the industry average.) The firm will raise 30% of the 2016 forecasted interest-bearing debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term deb) is 12.5%. Assume that any common stock issuances or repurchases can be made at the firm’s current stock price of $45.a. Construct the forecasted financial statements assuming that…
Please Show Answers: Plank’s Plants had net income of $10,000 on sales of $100,000 last year. The firm paid a dividend of $400. Total assets were $600,000, of which $300,000 was financed by debt. a. What is the firm’s sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) b. If the firm grows at its sustainable growth rate, how much debt will be issued next year? (Do not round intermediate calculations.) c. What would be the maximum possible growth rate if the firm did not issue any debt next year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
(Measuring growth) Solarpower Systems earned $20 per share at the beginning of the year and paid out $9 in dividends to shareholders (so, D0=$9) and retained $11 to invest in new projects with an expected return on equity of 19 percent. In the future, Solarpower expects to retain the same dividend payout ratio, expects to earn a return of 19 percent on its equity invested in new projects, and will not be changing the number of shares of common stock outstanding. a. Calculate the future growth rate for Solarpower's earnings. b. If the investor's required rate of return for Solarpower's stock is 15 percent, what would be the price of Solarpower's common stock? c. What would happen to the price of Solarpower's common stock if it raised its dividends to $13 and then continued with that same dividend payout ratio permanently? Should Solarpower make this change? (Assume that the investor's required rate of return remains at 15 percent.) d. What would happened to…
(Measuring growth) Solarpower Systems earned $20 per share at the beginning of the year and paid out $8 in dividends to shareholders (so, D0=$8) and retained $12 to invest in new projects with an expected return on equity of 21 percent. In the future, Solarpower expects to retain the same dividend payout ratio, expects to earn a return of 21 percent on its equity invested in new projects, and will not be changing the number of shares of common stock outstanding. a. Calculate the future growth rate for Solarpower's earnings. b. If the investor's required rate of return for Solarpower's stock is 13 percent, what would be the price of Solarpower's common stock? c. What would happen to the price of Solarpower's common stock if it raised its dividends to $12 and then continued with that same dividend payout ratio permanently? Should Solarpower make this change? (Assume that the investor's required rate of return remains at 13 percent.) d. What would happened…
The most recent financial statements for Bello Co. are shown here: Income Statement Balance Sheet Sales $ 18,900 Current assets $ 11,700 Debt $ 15,700 Costs 12,800 Fixed assets 26,500 Equity 22,500 Taxable income $ 6,100 Total $ 38,200 Total $ 38,200 Taxes (21%) 1,281 Net income $ 4,819 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 percent dividend payout ratio. What is the sustainable growth rate?
Joel Williams follows Sonoco Products Company (NYSE: SON), a manufacturer of paper and plastic packaging for both consumer and industrial use. SON appears to have a dividend policy of recognizing sustainable increases in the level of earnings with increases in dividends, keeping the dividend payout ratio within a range of 40 percent to 60 percent. Williams also notes: SON’s most recent quarterly dividend (ex-dividend date: 15 August 2007) was $0.26, consistent with a current annual dividend of 4x $0.26 =$1.04 per year. SON’s forecasted dividend growth rate is 6.0 percent per year. With a beta of 1.13, given an equity risk premium (expected excess return of equities over the risk-free rate, E [RM] – RF) of 4.5 percent and a risk-free rate (RF)of 5 percent, SON’s required return on equity is r= RF + beta[E(RM) – RF]=5.0+1.13(4.5)=10.1 percent, using the capital asset pricing model (CAPM). Williams believes the Gordon growth model may be an appropriate model for valuing SON. Calculate…

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