pany profit for the year on $3 million in revenue. The board of directors decides to keep half to pay for dividends and to reinvest the rest in the company. Sixty percent of the retained earnings are invested in non- current assets and the rest, in working capital for growth. Questions 1. Calculate, as a percentage of revenue, how much would be kept in the company for growth (i.e., working capital and non-current assets) and Show much would be used to pay dividends. 2. Explain who is responsible for deciding how much to retain in the business and how much to pay in dividends. 3. What do you think the board of directors would do if the profit for the year increased to $350,000?
pany profit for the year on $3 million in revenue. The board of directors decides to keep half to pay for dividends and to reinvest the rest in the company. Sixty percent of the retained earnings are invested in non- current assets and the rest, in working capital for growth. Questions 1. Calculate, as a percentage of revenue, how much would be kept in the company for growth (i.e., working capital and non-current assets) and Show much would be used to pay dividends. 2. Explain who is responsible for deciding how much to retain in the business and how much to pay in dividends. 3. What do you think the board of directors would do if the profit for the year increased to $350,000?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assume that a company earns $280,000 in profit for the year on $3 million in revenue.
The board of directors decides to keep half to pay for dividends and to reinvest the
rest in the company. Sixty percent of the retained earnings are invested in non-
current assets and the rest, in working capital for growth.
Questions
bombonima
1. Calculate, as a percentage of revenue, how much would be kept in the
in ples company for growth (i.e., working capital and non-current assets) and
ToodT TOShow much would be used to pay dividends.
2. Explain who is responsible for deciding how much to retain in the
business and how much to pay in dividends.
3.
What do you think the board of directors would do if the profit for
the year increased to $350,000?
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