Dividend Payout. Most Corporation had a net income of $800,000 in 20X1. Earnings have grown at an 8 percent annual rate. Dividends in 20X1 were $300,000. In 20X2, the net income was $1,100,000. This, of course, was much higher than the typical 8 percent annual growth rate. It is anticipated that earnings will go back to the 8 percent rate in future years. The investment in 20X2 was $700,000.
How much dividend should be paid in 20X2 assuming:
(a) a stable dividend payout ratio of 25 percent?
(b) a stable dollar dividend policy is maintained?
(c) a residual-dividend policy is maintained and 40 percent of the 20X2 investment is financed with debt?
(d ) the investment for 20X2 is to be financed with 80 percent debt and 20 percent retained earnings? Any net income not invested is paid out in dividends.