Reference no: EM133049032

Question - A financial analyst is attempting to assess the future dividend policy of Environmental Systems by examining its life cycle. She anticipates no payout of earnings in the form of cash dividends during the development stage (I). During the growth stage (II), she anticipates 18 percent of earnings will be distributed as dividends. As the firm progresses to the expansion stage (III), the payout ratio will go up to 33 percent and will eventually reach 60 percent during the maturity stage (IV).

a. Assuming earnings per share will be as follows during each of the four stages, indicate the cash dividend per share (if any) during each stage.

b. Assume in Stage IV that an investor owns 275 shares and is in a 15 percent tax bracket. What will be the investor's after tax income from the cash dividend?

c. In what two stages is the firm most likely to utilize stock dividends or stock splits?