A10. A10. (Dividend adjustment model) Regional Software has made abundle selling

Question

A10.

A10.

(Dividend adjustment model) Regional Software has made abundle selling spreadsheet software and has begun paying cashdividends. The firm’s chief financial officer would like thefirm to distribute 25% of its annual earnings (POR = 0.25) andadjust the dividend rate to changes in earnings per share at therate ADJ = 0.75. Regional paid $1.00 per share in dividends lastyear. It will earn at least $8.00 per share this year and each yearin the foreseeable future. Use the dividend adjustment model,Equation (18.1), tocalculate projected dividends per share for this year and the nextfour.

18.1

DPS1-DPS0=ADJ{POR(EPS1)-DPS0}

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

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---