Could someone help me make sense of this?

I dont understand the calculation. is the firm targeting to increase its dividend to $0.7 (28% of $2.5) or $0.896 (28% of $3.2)? Manthey Studios uses a target payout adjustment approach in paying its annual dividend. Last year, Manthey had earnings per share (EPS) of $2.50 and paid a dividend of $0.30 per share. This year, Manthey estimates its EPS will be $3.20. Manthey has a target payout ratio of 28% and uses a 5 year period to adjust its dividend. Which of the following is closest to Manthey’s expected dividend per share? A) $0.59. B) $0.34. C) $0.42. Your answer: C was incorrect. The correct answer was B) $0.34. Expected dividend = $0.30 + [($3.20 minus 2.50) × 0.28 × (1/5)] Expected dividend = $0.30 + $0.0392 = $0.34

The formula for expected dividend is: Expected dividend = Old dividend + (increase in eps x payout x 1/n) n=number of years You’ll get B :slight_smile:

could you explain the best way to remember this formula please? its not making sense to me.

write it 10 times it will make sense to you here is the sense: company will pay out dividends from increase in earnings. but company will not pay out the earnings right away, so say they pay them out in 5 years then 1/5 is the dividend factor. so in the end, u get current div+ (increase in earnings X payout ratio)/number of years

u dont have to get it, lol i dont… i just memorized it. it’s easy to memorize.