Lithion, Co

question 79

Multiple Choice

Lithion, Co. has a policy of returning a minimum of 25 percent of earnings to shareholders every year through dividend issues and open-market stock repurchases. In each quarter this year, the company earned $0.20 per share. In each of the first three quarters, the company paid a regular cash dividend of $0.05 per share. What combination of dividends could the company's board approve to meet their target payout percentage?

• A) A regular cash dividend of $0.05
• B) A regular cash dividend of $0.05 per share and an extra dividend of 0.05 per share
• C) A regular cash dividend of $0.05 per share and an extra dividend of $0.10 per share
• D) A regular cash dividend of $0.05 per share and an extra dividend of $0.20 per share

---

Definitions:

Capital Budget

The process and plan for determining and allocating financial resources for major investments or projects within a company.

Payout Ratio

The proportion of earnings paid out as dividends to shareholders, often expressed as a percentage.

Dividend Policies

The policies and guidelines a company follows in deciding how much of its earnings it will pay out to shareholders as dividends.

Bird-In-The Hand

A theory suggesting that investors prefer dividends from a stock to potential capital gains because of the immediate certainty of receiving payouts.