Case #1 The new intern is trying to understand the dividend policy of your firm. Having studied dividend policies at university, the intern wonders why the firm chose its dividend policy. The intern also wants to know how to estimate the dividend amount likely tc be paid the following year. The following limitec information is available. 1. The firm follows # residual dividend policy. 2. The total capital budget for the next year is dependent on the outcome of a feasibility study, and will either be $2 million; 3 million; or 4 milion. 3. The forecasted level of retained earnings for next year is $2 milion. 4. The firm wants to maintain = debt ratio of 40% Questions: a. Describe the purpose of a residual dividen¢ policy. Calculate the expected amount of the dividend, if any, for each of the three capital budget amounts. ©. Explain why there are differences in the amounts of the dividend for the three capital budget, amounts. case #2 Steel Enterprises’ earnings per share (EPS) for the period 2008 to 2015 are summarized in the table below. Use this information to calculate the dividends per share for each of the years and scenarios in parts A through D. Year 2015 2014 2013 2011 Scenarios: 2. For positive earnings only, payout 40% of earnings. $1.60 per Pay $0.75 per share and increase te $0.85 per share when earnings per share exceec share. per share when the earnings per share ©. Pay $0.75 per share and pay an extra dividend of $0.5¢ exceed $1.60. 4d. Pay $0.75 per share and pay an extra dividend of 50% of earnings above $1.50 per share. fe. Compare anc contrast each of the dividend policies described in parts A through D.