A firm has had the following earnings history over the last five years: If the firm's dividend policy was based on a constant payout ratio of 50 percent for all of the years with earnings over $1.50 per share and a zero payout otherwise,the annual dividends for 2012 and 2015 were ________.

Question

A firm has had the following earnings history over the last five years:  If the firm's dividend policy was based on a constant payout ratio of 50 percent for all of the years with earnings over $1.50 per share and a zero payout otherwise,the annual dividends for 2012 and 2015 were ________.

Quizplus · Accepted Answer

For the years with earnings over $1.50 per share, the dividend payout ratio is constant at 50%. Therefore, the dividends for the years with earnings over $1.50 per share are as follows:
- 2011: $0.50 (50% of $1.00 earnings per share)
- 2012: $0 (earnings of $0.50 per share, below threshold)
- 2013: $0.75 (50% of $1.50 earnings per share)
- 2014: $1.00 (50% of $2.00 earnings per share)
- 2015: $1.25 (50% of $2.50 earnings per share)

So the correct answer is C, with annual dividends for the years 2012 and 2015 being $0 and $1.25, respectively.

A Firm Has Had the Following Earnings History Over the Last