Carnegie Mellon and Produce Co. has $120,000,000 in stockholders' equity. Forty million dollars is listed as common

Question:

Carnegie Mellon and Produce Co. has $120,000,000 in stockholders' equity. Forty million dollars is listed as common stock and the balance is in retained earnings.

The firm has $250,000,000 in total assets and 3 percent of this value is in cash. Earnings for the year are $20,000,000 and are included in retained earnings.

a. What is the legal limit on current dividends?

b. What is the practical limit based on liquidity?

c. If the company pays out the amount in part b, what is the dividend payout ratio? (Compute this based on total dollars rather than on a per share basis because the number of shares is not given.)

Payout ratio = Dividends/Earnings

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...