The Sharpe Co. just paid a dividend of $1.50 per share of stock. Its target payout ratio

Question:

The Sharpe Co. just paid a dividend of $1.50 per share of stock. Its target payout ratio is 40 percent. The company expects to have an EPS of $4.15 one year from now.

a. If the adjustment rate is 0.3 as defined in the Lintner model, what is the dividend one year from now?

b. If the adjustment rate is 0.6 instead, what is the dividend one year from now?

c. Which adjustment rate is more conservative? Why?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...