A financial analyst is attempting to assess the future dividend policy of Interactive Technology by examining its life cycle. She anticipates no payout of earnings in the form of cash dividends during the developmental stage, (I). During the growth stage, (II) , she anticipates 10 percent of earnings will be distributed as dividends. As the firm progresses to the expansion stage, (III), the payout will go up to 40 percent, and eventually reach 60 percent during the maturity stage, (IV).

a. Assuming EPS will be as follows during each of the four stages, indicate the cash dividend per share (if any) during each stage.

Stage I. ……………… $0.20

Stage II ………………. 2.00

Stage Ill. ……………… 2.80

Stage IV. ……………… 3.00

b. Assume in Stage N that an investor owns 425 shares and is in a 31.33 percent marginal combined tax bracket for dividends. What will be the investor's after tax income from the cash dividend?

c. In what two stages is the firm most likely to utilize stock dividends or stock splits?