Bennett Farm Equipment Sales, Inc., is in a highly cyclic business. Although the firm has a target payout ratio of 25%, its board realizes that strict adherence to that ratio would result in a fluctuating dividend and create uncertainty for the firm€™s stockholders. Therefore, the firm has declared a regular dividend of $0.50 per share per year with extra cash dividends to be paid when earnings justify them. Earnings per share for the last several years are as follows:

a. Calculate the payout ratio for each year on the basis of the regular $0.50 dividend and the cited EPS.
b. Calculate the difference between the regular $0.50 dividend and a 25% payout for each year.
c. Bennett has established a policy of paying an extra dividend of $0.25 only when the difference between the regular dividend and a 25% payout amounts to $1.00 or more. Show the regular and extra dividends in those years when an extra dividend would be paid. What would be done with the €œextra€ earnings that are not paid out?
d. The firm expects that future earnings per share will continue to cycle but will remain above $2.20 per share in most years. What factors should be considered in making a revision to the amount paid as a regular dividend? If the firm revises the regular dividend, what new amount should itpay?

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Year 2012 2011 2010 EPS $3.00 2.40 2.20 Year 2009 2008 2007 EPS $2.80 2.15 1.97