The correct answer is D. Preceding year EPS.
Lintner’s model is a model that describes how a firm’s dividend payout ratio is determined. The model states that the dividend payout ratio is a function of the firm’s earnings, its target payout ratio, and its speed of adjustment. The target payout ratio is the long-run percentage of earnings that the firm plans to pay out as dividends. The speed of adjustment is the speed at which the firm adjusts its dividend payout ratio to changes in its earnings.
The preceding year’s EPS is not considered in Lintner’s model because it is not a good predictor of future earnings. The preceding year’s EPS may be affected by one-time events, such as the sale of an asset or the write-off of an impairment. These events will not affect the firm’s future earnings, so they should not be considered when determining the firm’s dividend payout ratio.
A. Dividend Payout Ratio is the percentage of a firm’s earnings that it pays out as dividends.
B. Current EPS is the earnings per share of a firm for the most recent fiscal year.
C. Speed of Adjustment is the speed at which a firm adjusts its dividend payout ratio to changes in its earnings.