Problem 14-10 Alternative Dividend Policies Boehm Corporation has had stable ear
ID: 2622090 • Letter: P
Question
Problem 14-10
Alternative Dividend Policies
Boehm Corporation has had stable earnings growth of 5% a year for the past 10 years, and in 2013 Boehm paid dividends of $2.6 million on net income of $16.0 million. However, in 2014 earnings are expected to jump to $22.4 million, and Boehm plans to invest $12.8 million in a plant expansion. This one-time unusual earnings growth won't be maintained, though, and after 2014 Boehm will return to its previous 5% earnings growth rate. Its target debt ratio is 35%.
Explanation / Answer
Boehm Corporation has had stable earnings growth of 5% a year for the past 10 years, and in 2013 Boehm paid dividends of $2.6 million on net income of $16.0 million. However, in 2014 earnings are expected to jump to $22.4 million, and Boehm plans to invest $12.8 million in a plant expansion. This one-time unusual earnings growth won't be maintained, though, and after 2014 Boehm will return to its previous 5% earnings growth rate. Its target debt ratio is 35%.