Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance)
15th Edition
ISBN: 9780134478166
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 14, Problem 14.6P
Low-regular-and-extra dividend policy Bennett Farm Equipment Sales Inc. is in a highly cyclical business. Although the firm has a target payout ratio of 25%, its board realizes that strict adherence to that ratio would result in a fluctuating dividend and create uncertainty for the firm’s stockholders. Therefore, the firm has declared a regular dividend of $0.50 per share per year with extra cash dividends to be paid when earnings justify them. Earnings per share for the past several years are shown in the following table.
- a. Calculate the payout ratio for each year on the basis of the regular $0.50 dividend and the cited EPS.
- b. Calculate the difference between the regular $0.50 dividend and a 25% payout for each year.
- c. Bennett has established a policy of paying an extra dividend of $0.25 only when the difference between the regular dividend and a 25% payout amounts to $1.00 or more. Show the regular and extra dividends in those years when an extra dividend would be paid. What would be done with the “extra” earnings that are not paid out?
- d. The firm expects that future earnings per share will continue to cycle but will remain above $2.20 per share in most years. What factors should be considered in making a revision to the amount paid as a regular dividend? If the firm revises the regular dividend, what new amount should it pay?
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Management action and stock value REH Corporation's most recent dividend was $1.56 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are beingconsidered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actionsa. Do nothing, which will leave the key financial variables unchanged.b. Invest in a new machine that will increase the dividend growth rate to 8% and lower the required return to 11%Eliminate an unprofitable product line, which will increase the dividend growth rate to 6% and raise the required return to 19%.d. Merge with another firm, which will reduce the growth rate to 3% and raise the required return to 17%e. Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 3% and increase the required return to 19%a. If the firm does nothing that will leave the key financial variables…
Chapter 14 Solutions
Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance)
Ch. 14.1 - What two ways can firms distribute cash to...Ch. 14.1 - Why do rapidly growing firms generally pay no...Ch. 14.1 - The dividend payout ratio equals dividends paid...Ch. 14.2 - Prob. 14.4RQCh. 14.2 - Prob. 14.5RQCh. 14.2 - What benefit is available to participants in a...Ch. 14.3 - Does following the residual theory of dividends...Ch. 14.3 - Contrast the basic arguments about dividend policy...Ch. 14.4 - Prob. 14.9RQCh. 14.5 - Describe a constant-payout-ratio dividend policy,...
Ch. 14.6 - Why do firms issue stock dividends? Comment on the...Ch. 14.6 - Compare a stock split with a stock dividend.Ch. 14 - Prob. 1ORCh. 14 - Prob. 14.1STPCh. 14 - Prob. 14.1WUECh. 14 - Prob. 14.2WUECh. 14 - Prob. 14.3WUECh. 14 - Prob. 14.4WUECh. 14 - Prob. 14.5WUECh. 14 - Dividend payment procedures At the quarterly...Ch. 14 - Prob. 14.2PCh. 14 - Prob. 14.3PCh. 14 - Dividend constraints The Howe Companys...Ch. 14 - Prob. 14.5PCh. 14 - Low-regular-and-extra dividend policy Bennett Farm...Ch. 14 - Alternative dividend policies Over the past 10...Ch. 14 - Alternative dividend policies Given the earnings...Ch. 14 - Stock dividend: Firm Columbia Paper has the...Ch. 14 - Cash versus stock dividend Milwaukee Tool has the...Ch. 14 - Stock dividend: Investor Sarah Warren currently...Ch. 14 - Stock dividend: Investor Security Data Company has...Ch. 14 - Stock split: Firm Growth Industries current...Ch. 14 - Prob. 14.14PCh. 14 - Stock split versus stock dividend: Firm Mammoth...Ch. 14 - Prob. 14.16PCh. 14 - Prob. 14.17PCh. 14 - Prob. 14.18PCh. 14 - Prob. 14.19P
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