# FIN 534 Homework Set 5 Week 10 Solution - 94338

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# FIN 534 Homework Set 5 Week 10 Solution

FIN 534 – Homework Set #5

Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. This homework assignment is worth 100 points.

Use the following information for Questions 1 through 3:

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 one-time 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. Its 2014 dividend payment is set to force dividends to grow at the long-run growth rate in earnings.

2. It continues the 2013 dividend payout ratio.

3. It uses a pure residual policy with all distributions in the form of dividends (35% of the \$7.3 million investment is financed with debt).

4. It employs a regular-dividend-plus-extras policy, with th

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