The earnings for Carlson Cargo, have been predicted for the next five years and are listed below. There are 1 million shares outstanding. Determine the yearly dividend per share to be paid if the following policies are enacted:
a) Constant dividend payout ratio of 40%.
b) Stable dollar dividend targeted at 40% of the earnings over the five-year period.
c) Small, regular dividend of $0.50 per share plus a year-end extra when the profits in any year exceed $1,500,000. The year-end extra dividend will equal 50% of profits exceeding $1,500,000.
d) Which method would you recommend? Briefly explain your answer
e) If Carlson Cargo operated under a dividend imputation system, why might a residual dividend policy not be a good policy?
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Profits After Tax
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1
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$1,500,000
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|
2
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2,000,000
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3
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1,750,000
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4
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950,000
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5
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2,500,000
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