Your firm successfully issued new debt last year, but the debt carries covenants. Specifically, you can only

Question:

Your firm successfully issued new debt last year, but the debt carries covenants. Specifically, you can only pay dividends out of earnings made after the debt issue and you must maintain a minimum quick (acid-test) ratio
((current assets – inventory) /current liabilities)
of 1:1. Your net income this year was $70 million. Your cash is $10 million, your receivables are $8 million, and your inventory is $5 million. You have current liabilities of $19 million. What is the maximum you could pay this year and still comply with your covenants?

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...