Big Bend Tubing's dividend was $2.20 last year. Big Bend's target payout ratio is 50%. This year's

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Big Bend Tubing's dividend was $2.20 last year. Big Bend's target payout ratio is 50%. This year's earnings per share are $5. But Pablo Donoso, the CFO, worries about higher raw- material costs and forecasts average future earnings of only $4 per share over the next 3 years. Should Mr. Donoso cut or increase this year's dividend? How does your answer change if forecast average earnings are $3, $5, or $7?

Big Bend Tubing's dividend was $2.20 last year. Big Bend's
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Fundamentals of Corporate Finance

ISBN: 978-0078034640

7th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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