Philips Rock and Mud is trying to determine the maximum amount of cash dividends it can pay
Question:
Philips Rock and Mud is trying to determine the maximum amount of cash dividends it can pay this year. Assume its balance sheet is as follows:
Assets | |
Cash | $ 312,500 |
Accounts receivable. | 800,000 |
Capital assets | 987,500 |
Total assets. | $2,100,000 |
Liabilities and Shareholders' Equity | |
Accounts payable | $ 445,000 |
Long-term notes payable | 280,000 |
Common stock (250,000 shares). | 500,000 |
Retained earnings | 875,000 |
Total liabilities and shareholders' equity. | $2,100,000 |
a. From a legal perspective, what is the maximum amount of dividends per share the firm could pay? Is this realistic?
b. In terms of cash availability, what is the maximum amount of dividends per share the firm could pay?
c. Assume the firm earned a 16 percent return on shareholders' equity. If the board wishes to pay out 60 percent of earnings in the form of dividends, how much will dividends per share be?
Step by Step Answer:
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta