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Boehm Corporation has had stable earnings growth of 3
Boehm Corporation has had stable earnings growth of 3.08% a year for the past 10 years and in 2013 Boehm paid dividends of $1,160,000 on net income of $5,160,000. However, in 2014 earnings are expected to jump to $12,900,000, and Boehm plans to invest $3,870,000 in a plant expansion. This one-time unusual earnings growth won't be maintained, though, and after 2014 Boehm will return to its previous 3.08% earnings growth rate. Its target debt ratio is 26.0%. How much will be its 2014 dividend if it grows relative to the 2013 dividend according to the past growth in earnings?
$755,762
$1,195,728
$528,424
$3,597,732
$518,160
Expert Solution
Dividend payout ratio= = Dividend / Net Income
= $1,160,000 / $5,160,000
= 22.48%
Projected Net Income for 2014 =$5,160,000*(100%+ 3.08%)
= $ 5,318,928
Dividend for 2014 =$ 5,318,928* 22.48%
= $ 1,195,695.01
So, Dividend will be $1,195,728. It is closest to $1,195,695.01.
Answer is different due to decimals.
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