Phillips Rock and Mud is trying to determine the maximum amount of cash dividend
ID: 2631863 • Letter: P
Question
Phillips 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 .............. $386,000
accounts receivable ......836,000
fixed assets.............. 1,048,000
total assets....... $2,270,000
liabilities and stockholder's equity
accounts payable .................$459,000
long term payable........ 371,000
common stock (259,000 shares at $1 par)..... 295,000
retained earnings......... 1,145,000
total liabilities and stock holders equity.........$2,270,000
a. From a legal perspective, what is the maximum amount of dividends per share the firm could pay?
b. In term of cash availability, what is the maximum amount of dividends Per share the firm could pay?
c. Assume the firm earned as 18 percent return on stockholders equity last year. If the board wishes to pay out 50 percent of earnings in the form of dividends, how much will dividends per share be? (Round to two places to the right of the decimal point.)
Explanation / Answer
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Philips Rock and Mud is trying to determine the maximum amount of cash dividends it can pay this year. The company has 250,000 shares outstanding. Assume its balance sheet is as follows: Assets Cash $ 412,500 Accounts Receivable 900,000 Fixed Assets 987,500 $2,300,000 Liabilities and Shareholders