Force dividends to grow at the long-run growth rate

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Reference no: EM13868375

Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8 million. However, in 2014 earnings are expected to jump to $12.6 million, and Boehm plans to invest $7.3 million in a plant expansion. This onetime unusual earnings growth won’t be maintained, though, and after 2014 Boehm will return to its previous 8% earnings growth rate. Its target debt ratio is 35%.

Calculate Boehm’s total dividends for 2014 under each of the following policies: 1. (a) Its 2014 dividend payment is set to force dividends to grow at the long-run growth rate in earnings. (b) It continues the 2013 dividend payout ratio.

Reference no: EM13868375

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