FIN 534 Week 10 Homework Set 5
Use the following information for Questions 1 through 3:Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8 million. However, in 2014 earnings are expected to jump to $12.6 million, and Boehm plans to invest $7.3 million in a plant expansion. This onetime unusual earnings growth won’t be maintained, though, and after 2014 Boehm will return to its previous 8% earnings growth rate. Its target debt ratio is 35%. Calculate Boehm’s total dividends for 2014 under each of the following policies: 1. Its 2014 dividend payment is set to force dividends to grow at the long-run growth rate in earnings. 2. It continues the 2013 dividend payout ratio. 3. It uses a pure residual policy with all distributions in the form of dividends (35% of the $7.3 million investment is financed with debt). 4. It employs a regular-dividend-plus-extras policy, with the...