Question

Abel Inc. applies the low regular dividend plus extras policy when determining how much of its income will be paid out as dividends each year. Abel's policy states that the minimum dividend that will be paid each year is $1.00 per share. But, when net income is greater than $80 million, the total dividend will be increased by 40 percent of the amount that exceeds $60 million. The firm currently has 10 million shares of stock outstanding. What will be the dividend per share if Abel earns $100 million

Answer 1

DPS = 2.60

Step-by-step explanation:

When the income is greater than 80 millions

the dividends will increase 40% of the amount that exceeds 60 millions

If abel earn 100 millons then

100 > 80 This earning qualifies for the extra dividend

amount over 60 x 40%

(100 - 60 ) x 40% = 16 millions

16/10 = 1.6 bonus dividends per share

base dividend $ 1.00

+ bonus $ 1.60

Total $ 2.60

Dividends per share when earning 100 millions = 2.60