Regional Software has made a bundle selling spreadsheet softwareand has begun pa

Question

Regional Software has made a bundle selling spreadsheet softwareand has begun paying cash dividends. The firm’s chieffinancial officer would like the firm to distribute 25% of itsannual earnings (POR = 0.25) and adjust the dividend rate tochanges in earnings per share at the rate ADJ = 0.75. Regional paid$1.00 per share in dividends last year. It will earn at least $8.00per share this year and each year in the foreseeable future.
DPS1 – DPS0 = ADJ [POR(EPS1) – DPS0] Use the dividend adjustment model above to calculate projecteddividends per share for this year and the next four. Please show work.
DPS1 – DPS0 = ADJ [POR(EPS1) – DPS0] Use the dividend adjustment model above to calculate projecteddividends per share for this year and the next four. Please show work.

Explanation / Answer

Using DividendAdjustment Model Calculate Projected Dividends per share for thenext four years: EPSt = The firm'searnings in period t DPSt = Thedividend in period t POR = Target PayoutRatio ADJ   = Dividendadjustment factor Pay Out Ratio(POR) = Dividends / Earnings After tax = 0.25(or) 25% Dividend Adjustment Factor(ADJ) = 0.75 Dividend Paid in Lastyear (DPS0) = $1 Current year Earningsper share (EPS1) = $8 DPS1 = DPS0 +ADJ [POR (EPS1) - DPS0] DPS1 = $1 + 0.75 [0.25($8) - $1] DPS1 =$1.75 DPS2 =DPS1 + ADJ [POR (EPS1) -DPS1] DPS2 = $1.75 +0.75[0.25($8) - $1.75] DPS2 =$1.9375 DPS3 =DPS2 + ADJ [POR (EPS1) -DPS2] DPS3 = $1.9375 +0.75[0.25($8) - $1.9375] DPS3 =$1.984375 DPS4 =DPS3 + ADJ [POR (EPS1) -DPS3] DPS4 =$1.984375 + 0.75[0.25($8) - $1.984375] DPS4 =$1.9961 Using DividendAdjustment Model Calculate Projected Dividends per share for thenext four years: EPSt = The firm'searnings in period t DPSt = Thedividend in period t POR = Target PayoutRatio ADJ   = Dividendadjustment factor Pay Out Ratio(POR) = Dividends / Earnings After tax = 0.25(or) 25% Dividend Adjustment Factor(ADJ) = 0.75 Dividend Paid in Lastyear (DPS0) = $1 Current year Earningsper share (EPS1) = $8 DPS1 = DPS0 +ADJ [POR (EPS1) - DPS0] DPS1 = $1 + 0.75 [0.25($8) - $1] DPS1 =$1.75 DPS2 =DPS1 + ADJ [POR (EPS1) -DPS1] DPS2 = $1.75 +0.75[0.25($8) - $1.75] DPS2 =$1.9375 DPS3 =DPS2 + ADJ [POR (EPS1) -DPS2] DPS3 = $1.9375 +0.75[0.25($8) - $1.9375] DPS3 =$1.984375 DPS4 =DPS3 + ADJ [POR (EPS1) -DPS3] DPS4 =$1.984375 + 0.75[0.25($8) - $1.984375] DPS4 =$1.9961

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