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B2. (Dividend policy) A firm has 20 million common shares outstanding. It currently pays out $1.50 per share per year in cash dividends on its common stock. Historically, its payout ratio has ranged from 30% to 35%. Over the next five years it expects the earnings and discretionary cash flow shown below in millions. a) Over the five-year period, what is the maximum overall payout ratio the firm could achieve without triggering a securities issue? b) Recommend a reasonable dividend policy for paying out discretionary cash flow in years 1 through 5. 1 2 3 4 5 Thereafter Earnings 100 125 150 120 140 150+ per year Discretionary 50 70 60 20 15 50+ per cash flow cash flow year

Submitted: 38 days ago.
Category: Homework
Value: $9
Status: CLOSED
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Subject: Finance

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Expert: Steve_Song
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Answered: 10/15/2009

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