Table 16.4 lists the dividends and earnings per share (EPS) for Merck and International Paper. Estimate the target payout for each company and the rate at which the dividend is adjusted toward the target. Suppose that in 2001 Merck?s earnings increase to $5 a share and International Paper?s earnings increase to $3 per share. How would you predict their dividends to change?

Transcribed Image Text:

International Paper Merck Dividend Year EPS Dividend EPS 1983 .17 .08 1.16 .6 1984 .19 .09 .09 .47 .6 1985 .21 .54 .6 1986 .27 .11 1.45 .6 1987 .37 .14 1.84 .61 .51 .64 1988 .22 3.28 3.86 1989 .63 .28 .77 .84 1990 .76 .32 2.60 1991 .92 .39 1.80 .84 1992 1.56 .46 0.58 .84 1993 .52 1.17 .84 1.44 1994 1.73 .84 1.19 .57 .62 1995 1.32 4.50 .92 .71 1.00 1996 1.56 1.04 1997 1.87 .85 1.00 -.20 1998 2.15 .95 .60 1.00 .48 1999 2.45 1.10 1.00 2000 2.90 1.21 .32 1.00