CHAPTER 14: DIVIDEND POLICY

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Short Answer

Critter Cookies is considering changing the firm’s dividend policy from a stable dollar policy to a payout ratio dividend policy.

Earnings (after-tax)	$1,345,218
Common Shares Outstanding	1,200,000
Common Shares Capital	$3,600,000
Retained Earnings	$4,812,218
Total Common Shareholders’ Equity	$8,412,218
Annual Dividend (per share)	$0.40
Common Share Price	$12.20

Calculate the EPS and current dividend payout ratio?

If the company changed its payout policy to 40%, what would be the new annual dividend amount? What concerns might investors have about the dividend policy change?

Critter Cookies is also considering issuing a stock dividend of 10%. What would be the change to the retained earnings and common share capital accounts? What would the expected new common share price be? Based upon a 40% dividend, what would the dividend payment be?