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. Year 1 2 3 4 5 Net Income $11 million 24 million 9 million 19 million 23 million Profitable Capital Total cash dividends Expenditure The Hastings Corporation has 2 million 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.) $ 8 million 11 million 7 million 7 million 8 million Answer is complete and correct. $ 45 million Total cash dividends b. If the firm simply uses a payout ratio of 40 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.) ✔ Answer is complete and correct. 34.4 million c. If the firm pays a 10 percent stock dividend in years 2 through 5, and also pays a cash dividend of $3.40 per share for each of the five years, how much in total dividends will be paid? Answer is complete but not entirely correct.

Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter7: Corporate Valuation And Stock Valuation
Section: Chapter Questions
Problem 1P: Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1...
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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.
Year
1
2
3
4
5
Net Income
$11 million
24 million
9 million
19 million
23 million
The Hastings Corporation has 2 million 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
Profitable Capital
Expenditure
$ 8 million
11 million
Answer is complete and correct.
7 million
7 million
8 million
Total cash dividends
$ 45
b. If the firm simply uses a payout ratio of 40 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.)
million
✔ Answer is complete and correct.
$ 34.4
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 $3.40 per share for each of
the five years, how much in total dividends will be paid?
Answer is complete but not entirely correct.
$
44 X
Transcribed Image Text: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. Year 1 2 3 4 5 Net Income $11 million 24 million 9 million 19 million 23 million The Hastings Corporation has 2 million 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 Profitable Capital Expenditure $ 8 million 11 million Answer is complete and correct. 7 million 7 million 8 million Total cash dividends $ 45 b. If the firm simply uses a payout ratio of 40 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.) million ✔ Answer is complete and correct. $ 34.4 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 $3.40 per share for each of the five years, how much in total dividends will be paid? Answer is complete but not entirely correct. $ 44 X
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