finance-Boehm Corporation has had stable earnings growth of 10%

QUESTION

Boehm Corporation has had stable earnings growth of 10% a year for the past 10 years, and in 2012 Boehm paid dividends of $3.0 million on net income of $10 million. However, in 2013 earnings are expected to jump to $14 million, and Boehm plans to invest $8 million in a plant expansion. This one-time unusual earnings growth won’t be maintained, though, and after 2013 Boehm will return to its previous 10% earnings growth rate. Its target debt ratio is 40%. Calculate Boehm’s total dividends and share repurchased to be paid out for 2013 if the company employs a regular-dividend-plus-extra stock repurchase policy, with the regular dividend being based on the long-run growth rate and the extra stock repurchase being set according to the residual policy.

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