Answer: $0.10

## Explanation This question involves the **Lintner model** of dividend policy, which states that companies adjust dividends gradually toward a target payout ratio over time. ### Given Information: - Previous year EPS = $2.00 - Previous year payout ratio = 30% - Previous year DPS = $2.00 × 30% = $0.60 - Current year expected EPS = $2.50 - Target payout ratio = 36% - Adjustment period = 3 years ### Calculation: **Step 1: Calculate the target dividend per share (DPS)** Target DPS = Current year EPS × Target payout ratio = $2.50 × 36% = $0.90 **Step 2: Calculate the adjustment factor** Since the company uses a 3-year adjustment period, the adjustment factor = 1/3 = 0.3333 **Step 3: Apply the Lintner model formula** Expected DPS = Previous DPS + Adjustment factor × (Target DPS - Previous DPS) Expected DPS = $0.60 + (1/3) × ($0.90 - $0.60) = $0.60 + (1/3) × $0.30 = $0.60 + $0.10 = $0.70 **Step 4: Calculate the expected increase** Expected increase = Expected DPS - Previous DPS = $0.70 - $0.60 = $0.10 Therefore, the expected increase in the current year dividend per share is **$0.10**, which corresponds to **Option A**.

Author: LeetQuiz .