(Dividend policies) Final earnings estimates for Chilean Health Spa & Fitness Center have been prepared for the CFO of the company and are shown in the following table: BE. The firm has 7,700,000 shares of common stock outstanding.As assistant to the CFO, you are asked to determine the yearly dividend per share to be paid depending on the following possible policies
a.A stable dollar dividend targeted at 50 percent of earnings over a 5-year period.
b.A small, regular dividend of $0.70 per share plus a year-end extra when the profits in any year exceed $21,000,000.

Answers

Answer 1

Answer:

The yearly dividend per share to be paid would depend on the policy that the company decides to implement - either $0.97 per share for policy (a) or $1.09 per share for policy (b).

For policy (a), to determine the yearly dividend per share to be paid, we need to calculate the average earnings over the 5-year period and take 50% of it as the targeted dividend per share. Let's assume the average earnings over the 5-year period is $15,000,000. Then, the targeted dividend per share would be:

Dividend per share = 50% x Average earnings / Number of shares Dividend per share = (0.5 * $15,000,000) / 7,700,000 Dividend per share = $0.97

For policy (b), we need to determine the year-end extra dividend when the profits in any year exceed $21,000,000. Let's assume that the profits for the current year are $24,000,000. Then, the year-end extra dividend per share would be:

Year-end extra dividend per share = (Profit - Threshold) / Number of shares Year-end extra dividend per share = ($24,000,000 - $21,000,000) / 7,700,000 Year-end extra dividend per share = $0.39

The regular dividend per share is given as $0.70. Therefore, the total dividend per share for policy (b) would be:

Total dividend per share = Regular dividend per share + Year-end extra dividend per share Total dividend per share = $0.70 + $0.39 Total dividend per share = $1.09

So, the yearly dividend per share to be paid would depend on the policy that the company decides to implement - either $0.97 per share for policy (a) or $1.09 per share for policy (b).

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Answers

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Answers

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