(Dividend policy) A firm has 20 million common shares outstanding. It currently pays out $1.50 per share year in cash dividends on its common stock. Historically, its payout ratio has ranged from 30% to 35%. Over the next five years it expects the earnings and discretionary cash flow shown below in millions.

A.over the five year period, what is the maxium overall payout ratio the firm could acieve without triggering a securities issue?

B. Recommend a reasonable dividend policy for paying out discretionary cash flow in years 1 through 5.

                                      1        2          3        4        5        Thereafter

Earnings                          100      125      150      120      140      150+ per year

Discrecreary cash flow        50       70        60        20       15        50+per year