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Which adjustment rate is more conservative

Question: The Sharpe Co. just paid a dividend of $1.50 per share of stock. Its target payout ratio is 40 percent. The company expects to have an earnings per share of $4.15 one year from now.

Q1. If the adjustment rate is .3 as defined in the Lintner model, what is the dividend one year from now?

Q2. If the adjustment rate is .6 instead, what is the dividend one year from now?

Q3. Which adjustment rate is more conservative? why?

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Accounting Basics: Which adjustment rate is more conservative

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Accounting Basics: Which adjustment rate is more conservative

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