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FIN 534 HOMEWORK SET 5

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Running head: DIVIDENDS, CAPITAL STRUCTURES DECISIONS 1
FIN 534 – Homework Set #5
Spalvera Graham
MBA - Acquisitions
Strayer University

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DIVIDENDS, CAPITAL STRUCTURES DECISIONS 2
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 Boehms total dividends for 2014 under each of the following policies:
 8%
  

$9.8 $10.584 $12.600
 $2.6 $2.808 $3.34
 0.265306
 26.5306%
!"#$%$&'($())(
*+ ( (  ) (  ,   $,-% ,  
,(.
Step 1: Find the dividend / net income ratio for 2013
Dividend/ Net Income Ratio = Dividend 2013 / Net Income2013
= $2.6 million / $9.8 million
= 0.265306
Dividend/Net Income Ratio = 26.5306 %
**The dividend/net income ratio will be used as the rate for the projection of dividends
Step 2: Calculate the 2014 projected net income using the long-run growth rate for Boehm,
which is at 8%.
Net Income Projected 2014 @ 8% = Net Income 2013 + (Net Income2013) (Growth Rate)
= $9.8 million + ($9.8 million) (0.08)

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Running head: DIVIDENDS, CAPITAL STRUCTURES DECISIONS 1 FIN 534 - Homework Set #5 Spalvera Graham MBA - Acquisitions Strayer University DIVIDENDS, CAPITAL STRUCTURES DECISIONS 2 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: Growth rate 8% 2013 2014 2014 Net Income $9.8 $10.584 $12.600 Dividend $2.6 $2.808 $3.34 Dividend/Net Income Ratio 0.265306 Dividend/Net Income % 26.5306% QUESTION #1: Calculate Boehm's total dividends for 2014 if its 2014 dividend payment is set to force dividends to grow at the long-run growth rate in earnings. Step 1: Find the dividend / net income ratio for 2013 Dividend/ Net Income Ratio = Dividend 2013 / Net Income2013 = $2.6 million / $9.8 million = 0.265306 Dividend/Net Income Ratio = 26.5306 % **The dividend/net income ratio will be used as the rate for the projection of dividends Step 2: Calculate the 2014 projected net income using the long-run growth rate for Boehm, which i ...
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