The following companies have different financial statistics. What dividend policies would you recommend for them? Explain your reasons Matthews Co. Aaron Corp Growth rate in sales and earnings 20% Cash as a percentage of total assets 15% Solution: Mathews is not growing very fast so it doesn't need cash for growth unless it desires to change its policies. Assuming it doesn't, Mathews should have a high payout ratio Aaron is growing very fast and needs its cash for reinvestment in assets. For this reason, aaron should have a low dividend payout 18-6 A financial analyst is attempting to assess the future dividend policy of Interactive Technology by examining its life cycle. She anticipates no payout of earnings in the form of cash dividends during the development stage(). During the growth stage (II), she anticipates 10 percent of earnings will be distribut as dividends. As the firm progresses to the expansion stage (IIf), the payout ratio will go up to 40 percent, and eventually reach 60 percent during the maturity stage (IV a. Assuming earnings per share will be the following during each of the four stages, ind icate the cash dividend per share(if any) during each stage Stage I $.20 Stage Ill 22 StageⅣV 3.00 b. Assume in Stage IV that an investor owns 425 shares and is in a 15 percent tax bracket for dividends what will be his or her total aftertax income from the cash d ividend? In what two stages is the firm most likely to utilize stock dividends or stock CopyrightC 2005 by The McGran-Hill Companies, Inc. S-632Copyright © 2005 by The McGraw-Hill Companies, Inc. S-632 18-5. The following companies have different financial statistics. What dividend policies would you recommend for them? Explain your reasons. Matthews Co. Aaron Corp. Growth rate in sales and earnings .................. 5% 20% Cash as a percentage of total assets ............... 15% 2% Solution: Mathews is not growing very fast so it doesn't need cash for growth unless it desires to change its policies. Assuming it doesn't, Mathews should have a high payout ratio. Aaron is growing very fast and needs its cash for reinvestment in assets. For this reason, Aaron should have a low dividend payout. 18-6. A financial analyst is attempting to assess the future dividend policy of Interactive Technology by examining its life cycle. She anticipates no payout of earnings in the form of cash dividends during the development stage (I). During the growth stage (II), she anticipates 10 percent of earnings will be distributed as dividends. As the firm progresses to the expansion stage (III), the payout ratio will go up to 40 percent, and eventually reach 60 percent during the maturity stage (IV). a. Assuming earnings per share will be the following during each of the four stages, indicate the cash dividend per share (if any) during each stage. Stage I $ .20 Stage II 2.00 Stage III 2.80 Stage IV 3.00 b. Assume in Stage IV that an investor owns 425 shares and is in a 15 percent tax bracket for dividends; what will be his or her total aftertax income from the cash dividend? c. In what two stages is the firm most likely to utilize stock dividends or stock splits?