A firm has had the following earnings history over the last five years: If the firm's dividend policy was to pay $0.25 per share each period,except that when earnings exceed $1.50 the firm pays an extra dividend equal to 50 percent of the earnings above $1.50,the annual dividends for 2016 and 2019 were ________.

Question

A firm has had the following earnings history over the last five years:  If the firm's dividend policy was to pay $0.25 per share each period,except that when earnings exceed $1.50 the firm pays an extra dividend equal to 50 percent of the earnings above $1.50,the annual dividends for 2016 and 2019 were ________.

Quizplus · Accepted Answer

First, we need to calculate the earnings above $1.50 for each year:

- Year 1: $1.70 - $1.50 = $0.20
- Year 2: $0.95 - $1.50 = $0 (no extra dividend paid)
- Year 3: $1.20 - $1.50 = $0 (no extra dividend paid)
- Year 4: $1.45 - $1.50 = $0 (no extra dividend paid)
- Year 5: $2.10 - $1.50 = $0.60

Next, we can calculate the total dividend paid for each year:

- Year 1: $0.25 + 0.5($0.20) = $0.35 per share
- Year 2: $0.25 per share
- Year 3: $0.25 per share
- Year 4: $0.25 per share
- Year 5: $0.25 + 0.5($0.60) = $0.55 per share

Finally, we can calculate the total annual dividends for 2016 and 2019:

- 2016: $0.35 per share x 100 shares = $35
- 2019: $0.55 per share x 100 shares = $55

Therefore, the answer is B) $0.25 and $0.75, respectively.

A Firm Has Had the Following Earnings History Over the Last