Renewable Energy Electri x LU Liberty University Portal x MMail- Hoy, John outlo
ID: 2754922 • Letter: R
Question
Renewable Energy Electri x LU Liberty University Portal x MMail- Hoy, John outlool x M Homework 8 C Home Chegg x C ezto.mheducation.com /hm.tpx 26 4.00 points The Hastings Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can earn a higher return on the projects than the stockholders could earn if the funds were paid out in the form of dividends. Profitable Capital Year Net Income Expenditure 8 million $15 million 25 million 12 million 9 million 7 million 12 million 7 million 16 million 8 million The Hastings Corporation has 2 m on shares outstanding The following questions are separate from each other) a. If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years? (Enter your answer in millions.) Total cash dividends million b. If the firm simply uses a payout ratio of 20 percent of net income, how much in total cash dividends will be paid? (Enter your answer in millions and round your answer to 1 decimal place Total cash dividends million c. If the firm pays a 10 percent stock dividend in years 2 through 5, and also pays a cash dividend of $2.40 per share for each of the five years, how much in total dividends will be paid? Total cash dividends 2:27 PM 12/14/2015Explanation / Answer
a.
Year
Net income
Capital expenditure
Retained earnings
1
$15 million
$8 million
$7 million
2
$25 million
$12 million
$13 million
3
$9 million
$7 million
$2 million
4
$12 million
$7 million
$5 million
5
$16 million
$8 million
$8 million
Total
$35 million
Total cash dividend to be paid over 5 years = $35 million.
b.
Year
Net income
Payout ratio
Dividends
1
$15 million
0.20
$3.0 million
2
$25 million
0.20
$5.0 million
3
$9 million
0.20
$1.8 million
4
$12 million
0.20
$2.4 million
5
$16 million
0.20
$3.2 million
$15.4 million
Total cash dividends = $15.40 million
c.
Year
Shares outstanding
Dividends per share
Dividends
1
2,000,000
$2.40
$4.80 million
2
2,200,000
$2.40
$5.28 million
3
2,420,000
$2.40
$5.81 million
4
2,662,000
$2.40
$6.39 million
5
2,928,200
$2.40
$7.03 million
$29.30 million
Total cash dividends = $29.30 million
d.
Year
Net income
Payout ratio
Dividends
Shares outstanding
Dividends per share
1
$15 million
0.20
$3.00 million
2,000,000
$1.50
2
$25 million
0.20
$5.00 million
2,200,000
$2.27
3
$9 million
0.20
$1.80 million
2,420,000
$0.74
4
$12 million
0.20
$2.40 million
2,662,000
$0.90
5
$16 million
0.20
$3.20 million
2,928,200
$1.09
Year
Net income
Capital expenditure
Retained earnings
1
$15 million
$8 million
$7 million
2
$25 million
$12 million
$13 million
3
$9 million
$7 million
$2 million
4
$12 million
$7 million
$5 million
5
$16 million
$8 million
$8 million
Total
$35 million