Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013 Boehm paid dividends of $2.6 million on net income of...

Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years andin 2013 Boehm paid dividends of $2.6 million on net income of $9.8 million. However, in2014 earnings are expected to jump to $12.6 million, and Boehm plans to invest $7.3million in a plant expansion. This one-time unusual earnings growth won’t bemaintained, though, and after 2014 Boehm will return to its previous 8% earnings growthrate. Its target debt ratio is 35%.a. Calculate Boehm’s total dividends for 2014 under each of the following policies:(1) Its 2014 dividend payment is set to force dividends to grow at the long-run growthrate in earnings.(2) It continues the 2013 dividend payout ratio.(3) It uses a pure residual policy with all distributions in the form of dividends (35% ofthe $7.3 million investment is financed with debt).(4) It employs a regular-dividend-plus-extras policy, with the regular dividend beingbased on the long-run growth rate and the extra dividend being set according tothe residual policy.b. Which of the preceding policies would you recommend? restrict your choices to the ones listed, but justify your answer.c. Does a 2014 dividened of $9 million seem reasonable in view of your answers to parts a and b? If not, should the dividend be higher or lower?

Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8million. However, in 2014 earnings are...