Explanation

Lintner Model Calculation:

The Lintner model suggests that companies adjust dividends gradually toward a target payout ratio. The formula is:

Expected Dividend Increase = Adjustment Factor × (Target Payout Ratio × Current EPS - Previous Dividend)

Where:

• Adjustment Factor = 1 / Number of years in adjustment period
• Previous Dividend = Previous EPS × Previous Payout Ratio

Step-by-step calculation:

1. Previous Dividend = $2.00 × 30% = $0.60
2. Target Dividend = $2.50 × 36% = $0.90
3. Adjustment Factor = 1 / 3 = 0.3333
4. Expected Dividend Increase = 0.3333 × ($0.90 - $0.60) = 0.3333 × $0.30 = $0.10

Therefore, the expected increase in the current year dividend per share is $0.10.