Paul Schwartz, president of Schwartz Corporation, believes that it is good practice to maintain a constant payout

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Paul Schwartz, president of Schwartz Corporation, believes that it is good practice to maintain a constant payout of dividends relative to profit. Last year, profit was $600,000, and the company paid $60,000 in dividends. This year, due to some unusual circumstances, the company had a profit of $2 million. Paul expects next year's profit to be about$700,000.
(a) What was Schwartz Corporation's payout ratio last year?
(b) If it is to maintain the same payout ratio, what amount of dividends would it pay this year?
(c) Is this a good idea? In other words, what are the pros and cons of maintaining a constant payout ratio?
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Related Book For  book-img-for-question

Financial Accounting Tools for Business Decision Making

ISBN: 978-1118644942

6th Canadian edition

Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine

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