Fin516

FI516 Solution to Week 1 In-Class Exercise Chapter 14 & adenosine monophosphate; 19 Question 1 In 2010, Wilson Company paid dividends totaling $4.7 billion on net income of $12.9 million. The year was a normal one, and earnings ingest grown at a constant regular(a)ize of 9% for the past 5 years. However, in 2011, earnings be expect to jump to $15.9 million, and the firm expects to have profitable investing opportunities of $7.2 million. It is predicted that Wilson ordain not be able to maintain the 2011 level of earnings ingathering-the high 2011 projected earnings level overdue to an exception tout ensembley profitable new product line to be introduced that year-and consequently the company will return to its previous 9% growth regularize. Wilsons tar exact debt ratio is 40%. a. Calculate Wilsons total dividends for 2011 if it follows each of the following policies (1) Its 2011 dividend compensation is set to legions dividends to grow at the long-run growth ordain in earnings. (2) It continues the 2010 dividend payout ratio. (3) It uses a pure residual policy with all distributions in the fig of dividend (40% of the $7.2 million investment is financed with debt). (4) It employs a regular-dividend-plus-extras policy, with the regular dividend be establish on the long-run growth rate and the extra dividend being set according to the residual policy. 1.2011 Dividends = (1.

09)(2010 Dividends) = (1.09)($4,700,000) = $5,123,000 2.2010 Payout = $4,7 00,000/$12,900,000 = 0.3643 = 36.43% 2011! Dividends = (0.3643)(2011 wage income) = (0.3643)($15,900,000) = $5,793,023 (Note: If the payout ratio is go off to 37%, 2011 dividends are and then calculated as $5,883,000.) 3.Equity finance = $7,200,000(0.60) = $4,320,000 2011 Dividends = Net income - Equity financing = $15,900,000 - $4,320,000 = $11,580,000...If you want to get a full essay, order it on our website: BestEssayCheap.com

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