This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: 12-4Residual dividend policy(1) New investments$2,700,000(2) Retained earnings available 1,200,000(3) Equity Needed (40% of 1)1,080,000(4) Dividends [(2) (3)]120,000(5) Dividend payout ratio [(4) (2)]10%12-10Alternative dividend policiesa.YearDividendYearDividend1999$0.102004$1.2820000.0020051.1220010.7220061.2820020.4820071.5220030.9620081.60b.YearDividendYearDividend1999$1.002004$1.1020001.0020051.2020011.0020061.3020021.0020071.4020031.0020081.50c.YearDividendYearDividend1999$0.502004$0.6620000.5020050.5020010.5020060.6620020.5020071.1420030.5020081.30d.With a constant-payout policy, if the firms earnings drop or a loss occurs, the dividends will be low or nonexistent. A regular dividend or a low-regular-and-extra dividend policy reduces owner uncertainty by paying relatively fixed and continuous dividends.12-12Share dividend - firmAfter the share dividend, Hilos shareholders equity account is as follows:Ordinary shares capital (45,000 shares)$500,000Retained earnings350,000Total shareholders equity$850,00012-15...
View Full Document