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?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter9: Responsibility Accounting And Decentralization

Section: Chapter Questions

Problem 3PB: The income statement comparison for Rush Delivery Company shows the income statement for the current...

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The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250,000. The company is planning to launch a project that will requires an investment of $175,000 next year. Currently the share of Giant machinery is $25/share. Please answer: a) How much dividend Giant Machinery can pay its shareholders this year and what is dividend payout ratio of the company? Assume the Residual Dividend Payout Policy applies. b) If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%. c) Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidation plan due to the severe contraction of operation due to corona virus. The company plans to pay total dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend. The required rate of return for shareholders is…
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