Suppose Care-4-You Hospital has two million dollars of net income remaining at the end of 201x....

 

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Suppose Care-4-You Hospital has two million dollars of net income remaining at the end of 201x. The financial managers must decide whether to retain all the earnings or pay a dividend to stockholders. 1. If the financial managers pay dividends to stockholders in the amount of one million dollars (half of the net income amount), what effect does this have on the statement of retained earnings? What account(s) would be affected? (4 points) 2. Discuss the advantages or disadvantages of retaining the money in the business versus paying a dividend to the stockholders. (5 points) 3. Suppose you are a financial manager at Care-4-You Hospital. You discover that a new piece of equipment costing $1 million would allow the hospital to expand its services. In two years, the hospital would recover all initial costs of the machine. As the financial manager, would you recommend purchasing the equipment? Why or why not? What impact does your decision have on the hospital, the stockholders and other users of financial information? (8 points) Suppose Care-4-You Hospital has two million dollars of net income remaining at the end of 201x. The financial managers must decide whether to retain all the earnings or pay a dividend to stockholders. 1. If the financial managers pay dividends to stockholders in the amount of one million dollars (half of the net income amount), what effect does this have on the statement of retained earnings? What account(s) would be affected? (4 points) 2. Discuss the advantages or disadvantages of retaining the money in the business versus paying a dividend to the stockholders. (5 points) 3. Suppose you are a financial manager at Care-4-You Hospital. You discover that a new piece of equipment costing $1 million would allow the hospital to expand its services. In two years, the hospital would recover all initial costs of the machine. As the financial manager, would you recommend purchasing the equipment? Why or why not? What impact does your decision have on the hospital, the stockholders and other users of financial information? (8 points)

Answer rating: 100% (QA)

1 Effect on Retained Earnings The Retained Earnings will get reduced by 1 Million Dollars by paying dividends to stockholders The Following Accounts a... View the full answer