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 expected earnings for next year, then applying the 30% payout ratio. Given the long-term earnings growth rate is consistent with the increase from $25,000,000 to $26,250,000, this is a 5% growth rate ($1,250,000 / $25,000,000). Applying this 5% growth rate to this year's earnings of $26,250,000 gives next year's expected earnings as $27,562,500 ($26,250,000 * 1.05). 30% of $27,562,500 is $8,268,750. Dividing this by the 4,000,000 shares outstanding gives a dividend of $2.07 per share.

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