Established policy of paying an extra dividend

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Reference no: EM131067490

Bennet farm Equipment sales is in a highly cyclic business. Although the firm has a target payout ratio of 25%, its board realizes that strict adherence to the ratio would result in a fluctuating dividend and create uncertainty for the stockholders. Therefore, the firm has declared a regular dividend 0f $0.50 per share per year with extra cash dividends to be paid when the earnings justify them. Earnings per share for the last several years are shown below

2010 at $1.97, 2011 at $2.15, 2012 at $2.80, 2013 at $2.20, 2014 at $2.40, 2015 at $ 3.00

a) Calculate the payout ratio for each year on the basis of the regular $0.50 dividend and the cited EPS.

b) Calculate the difference between the regular $0.50 dividend and a 25% payout for each year.

c) Bennet has established a policy of paying an extra dividend of $0.25 only when the difference between the regular dividend and a 25% payout amounts to $1.00 or more. Show the regular and extra dividends in those years when an extra dividend would be paid.

Reference no: EM131067490

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