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1、In 2007,M Corporation paid dividends totaling $3 million on net income of $15 million.2007 was a normal year, and for the past five years, earnings have grown at a constant rate of 10 percent. However,earnings are expected to jump to $18 million in 2008,and the firm expects to have $12 million investment opportunities in 2009.It is predicted that M will not be able to maintain the 2008 level of earnings growth in the future----the high 2008 earnings level is attributable to an exceptionally profitable new product line introduced in that year----and the company will return to its previous 10 percent growth rate. M’s target debt ratio is 40 percent in 2007, which will be continued in the future. Hwiw:lPq`E
Calculate M’s expected dividends for 2008 if it follows each of the following policies: @ A?Ss8p'
A. Its 2008 dividend payment is set to make dividends grow at the long-run growth rate in earnings. Jvac|rN
B. It continues the 2007 dividend payout ratio. ny'?Hl'Q
C. It uses a residual policy with all distributions in the form of dividends. #k?uY
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D. It employs a regular-dividend-plus-extras policy, with the regular dividend being based on the long-run growth rate and the extra dividend being set according to the residual policy(Indicate the regular dividend and the extra dividend separately). yUd>EnQna
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Answer: O1xK\ogv
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A: long-run growth rate {B|)!_M#
3*(1+10%) =3.3 million `-y
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B: target payout ratio &p