Corporate Finance Quiz
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DIVIDENDS AND REPURCHASES
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An analyst uses the Lintner model, ΔDPSt=a⋅(p⋅EPSt−DPSt−1)\Delta DPS_t = a \cdot (p \cdot EPS_t - DPS_{t-1}), to study dividend policy. A firm has a target payout ratio (p) of 50% and a speed of adjustment (a) of 20%. This year's earnings per share (EPStEPS_t) is $6.00, and last year's dividend per share (DPSt−1DPS_{t-1}) was $2.00.
Based on the provided Lintner model, the firm's calculated dividend per share for this year is $2.20. This outcome and the model's parameters primarily reflect a managerial policy that signals:
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