In 1991 a Firm Paid Dividends of $6 Million

question 26

Multiple Choice

In 1991 a firm paid dividends of $6 million. Their target payout ratio is .4, their 1992 earnings are $18 million, and alpha or speed of adjustment is.7. Their dividends for 1992 would be

• A) $6.42 million.
• B) $6.36 million.
• C) $6.84 million.
• D) $7.12 million.

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Definitions:

Dividend Paying

A characteristic of companies that regularly distribute a portion of their profits to shareholders.

Strike Call

A term that is likely confused with "call option," which is a financial contract giving the buyer the right, but not the obligation, to buy a stock or other asset at a predetermined price (the strike price) within a specific time frame.

Interest Rate

The fee, in the form of a percentage of the principal, that a lender requires from a borrower for the usage of assets.

Put Option

An agreement in finance that allows the owner to sell a predetermined quantity of a basic asset at an agreed-upon price during a defined period, though they are not required to do so.