Given the financial information for the A.E Neuman Corporation answer the following question:

a) Prepare a statement of cash flows for the year ending 2007

b) What is the dividend payout ratio for 2007?

c) If we increased the dividend payout ratio to 100% what would happen to the retained earnings at year-end 2007?

A.E. Neuman Corporation

Year-end Balance Sheets

A.E Neuman Corporation
Income Statement for Year Ended December 31, 2007
Sales ..........................................................................................$5,500,000
Less: Cost of goods Sold ............................................................4,200,000
Gross Profit .................................................................................1,300,000
Less: Selling and Administrative Expense ....................................260,000
Operating Profit ..........................................................................1,040,000
Less: Depreciation Expense ...........................................................150,000
Earnings before Interest and Taxes ................................................890,000
Less: Interest Expense .....................................................................90,000
Earnings before Taxes ...................................................................800,000
Less: Taxes (50%) .........................................................................400,000
Net Income .................................................................................$ 400,000
Dividends Paid ...........................................................................$300,000

ASSETS Cash Marketable Securities Accounts Receivable Inventories Investments 2007 50,000 160.000 220,000 275,000 2006 S45,000 175,000 240,000 230,000 70.000 55,000 1,550,000 600.000 950.000 1.710,000 Plant and Equipment Less Accumulated Depreciation Net Plant and Equipment Total Assets Liabilities and Stockholders' equity Accounts Payable Notes Payable Accrued Expenses Income Taxes Payable Bonds Pavable 800.000 900.000 Common Stock (100,000 shares, S1 par) Capital Paid in Excess of Par Retained Eamings Total Liabilities and Stockholders Equity 1,300,000 450.000 1610,000 S 110,000 65.000 30,000 5,000 S85,000 0.000 5,000 10,000 100,000 100,000 400.000 100,000 100,000 500,000 1610,000 1710,000