Phillips Rock and Mud is trying to determine the maximum amount of cash dividend
ID: 2739599 • 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:
From a legal perspective, what is the maximum amount of dividends per share the firm could pay? (Do not round intermediate calculations and round your answer to 2 decimal places.)
In terms of cash availability, what is the maximum amount of dividends per share the firm could pay?(Do not round intermediate calculations and round your answer to 2 decimal places.)
Assume the firm earned an 12 percent return on stockholders’ equity last year. If the board wishes to pay out 70 percent of earnings in the form of dividends, how much will dividends per share be? (Do not round intermediate calculations and round your answer to 2 decimal places.)
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:
Explanation / Answer
a)
Dividend per share:
= $1,080,000/280,000
= $3.86
b)
= $323,000/280,000
= $1.15
c)
Net income = 12%×($280,000+$1,080,000)
= $163,200
Dividend per share:
= $163,200×0.70/280,000
= $0.41