(Dividend adjustment model)
Regional Software has made a bundle selling spreadsheet software and has begun paying cash dividends. The firm’s chief financial officer would like the firm to distribute 25% of its annual earnings (POR = 0.25) and adjust the dividend rate to changes in earnings per share at the rate ADJ = 0.75. Regional paid $1.00 per share in dividends last year. It will earn at least $8.00 per share this year and each year in the foreseeable future.
(Divident adjustment model): DPS1 − DPS0 = ADJ[POR(EPS1) − DPS0]
1. Use the dividend adjustment model, to calculate projected dividends per share for this year and the next four.