finance in 2002 the keenan company paid dividends totaling $3,600,000 on net income of $10.8 million. 2002 was a normal year, and for the past 10 years, earnings have grown at a constant rate of 10...

finance

in 2002 the keenan company paid dividends totaling $3,600,000 on net income of $10.8 million. 2002 was a normal year, and for the past 10 years, earnings have grown at a constant rate of 10 percent. However, in 2003, 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 2003 level of earnings growth- the high 2003 earnings level is attributable to an exceptionally profitable new product line introduced that year- and the company will return to its previous 10 percent growth rate. keenan's target capital structure is 40 percent debt and 60 percent equity.


calculate keenan's total dividends for 2003 if it follows each of the following policies:

its 2003 dividend payment is set to force dividends to grow at the long-run growth rate in earning.

It continues the 2002 dividend payout ratio.

It uses a pure residual dividend policy ( 40 percent of the $8.4 million investment is financed with debt and 60 percent with common equity).

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.

 

Asked on by neenneedd

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ask996 | High School Teacher | (Level 1) Senior Educator

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I’ll be honest, I don’t know much about business finance, but this seems as if it should be posted in the questions section. There’s really no way to discuss it is there. You’re looking for a correct answer right? Try checking out the following e-notes link. It might help.

 

http://en.wikipedia.org/wiki/Earnings_growth

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