Choc-lattes Corp.earned $5.00 per share in 2006,and paid a dividend of $2.00 per share.If it earns $5.50 in 2007 and follows a constant payout ratio policy,its dividend will be

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The constant payout ratio is calculated as the dividend per share divided by earnings per share. For 2006, this is $2.00 / $5.00 = 0.4 or 40%. Applying the same payout ratio to the 2007 earnings of $5.50 gives a dividend of $5.50 * 0.4 = $2.20.

Choc-Lattes Corp