In 2013, the Lissa Company paid dividends of $10,000,000 on after-tax income (cash flow) of $25,000,000. Capital budget projects totaled $15,000,000 in 2013. 2013 was a normal year for earnings, dividends, and capital budgets. For the past 12 years, earnings have grown at a constant rate of 8%. However, in 2014, earnings are expected to fall to $20,000,000 and the firm expects to have profitable investment opportunities will grow to 18,000,000. It is predicted that Lissa will not maintain the 2014 level of earnings growth, and the company will return to the 2013 earnings (25,000,000) and growth rate (8%) in 2015. Lissa's target market value leverage ratio is 50% and it is at the target.
a. Calculate Lissa's total dividends for 2014 if its dividend payment is set to force dividends to grow at the long-run growth rate in earnings.
b. Calculate Lissa's total dividends for 2014 if it continues its 2013 dividend payout ratio.
c. Calculate Lissa's total dividends for 2014 if it uses a pure residual dividend.