Extruded Elements
Extruded Elements had Net Income of $25,000,000 last year, and $26,250,000 this year (in line with its long-term earnings growth rate). There are 4,000,000 shares outstanding, and the firm follows a policy of paying 30% of its earnings out as dividends
-What is Extruded Elements' expected dividend next year?

Question

Quizplus · Accepted Answer

The expected dividend next year can be calculated by first determining the earnings for next year based on the long-term earnings growth rate. The growth rate is found by dividing this year's earnings by last year's earnings and subtracting 1: ($26,250,000 / $25,000,000) - 1 = 0.05 or 5%. Applying this 5% growth rate to this year's earnings gives next year's earnings: $26,250,000 * 1.05 = $27,562,500. The firm pays out 30% of its earnings as dividends, so the total dividends paid out next year would be $27,562,500 * 0.30 = $8,268,750. Dividing this by the 4,000,000 shares outstanding gives a dividend per share of $2.07.

Extruded Elements Extruded Elements Had Net Income of $25,000,000 Last Year, and Year