Principles of Managerial Finance
Principles of Managerial Finance
17th Edition
ISBN: 9781323419656
Author: Gitman
Publisher: PEARSON
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Chapter 14, Problem 14.4P

Dividend constraints The Howe Company’s stockholders’ equity account follows:

Common stock (400,000 shares at $4 par) $1,600,000
Paid-in capital in excess of par $1,000,000
Retained earnings $1,900,000
Total stockholders’ equity $4,500,000

The earnings available for common stockholders from this period's operations are $100,000, which have been included as part of the $1.9 million retained earnings.

  1. a. What is the maximum dividend per share that the firm can pay? (Assume that legal capital includes all paid-in capital.)
  2. b. If the firm has $160,000 in cash, what is the largest per-share dividend it can pay without borrowing?
  3. c. Indicate the accounts and changes, if any, that will result if the firm pays the dividends indicated in parts a and b.
  4. d. Indicate the effects of an $80,000 cash dividend on stockholders’ equity.
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Principles of Managerial Finance

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Dividend explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Wy7R-Gqfb6c;License: Standard Youtube License