What is the present value of a 50 perpetuity if interest rates ...

[tingc95]

What is the present value of a 50 perpetuity if interest rates are 7?
 
  A) 1.21
  B) 18.12
  C) 714.29
  D) 3.50
  E) 593.23

Question 2

Identify and explain three different dividend policies.
 
  What will be an ideal response?

[maya.nigrin17@yahoo.com]

Answer to Question 1

C

Answer to Question 2

A constant dividend payout ratio: under this policy, the percentage of earnings paid out in dividends is held constant.
Although the dividend-to-earnings ratio is stable, the dollar amount of the dividend naturally fluctuates from year to
year as profits vary.
A stable dollar dividend per share: this policy maintains a relatively stable dollar dividend over time. An increase in
the dollar dividend usually does not occur until management is convinced that the higher dividend level can be
maintained in the future. Conversely, a lower dollar dividend will not be paid until the evidence clearly indicates that
a continuation of the current dividend cannot be supported.
A small, regular dividend plus a year-end extra: a corporation following this policy pays a small, regular dollar
dividend plus a year-end extra dividend in prosperous years. The extra dividend is declared toward the end of the
fiscal year after the company's profits for the period can be estimated. The objective is to avoid the connotation of a
permanent dividend being paid. However, this purpose may be defeated if recurring extra dividends come to be
expected by investors.