Phillips Rock and Mud is trying to determine the maximum amount of cash dividends it can pay this year. Assume its balance sheet is as follows:
|
Assets
|
|
Cash
|
$ 386,000
|
|
Accounts receivable
|
836,000
|
|
Fixed assets
|
1,048,000
|
|
Total assets
|
$2,270,000
|
|
Liabilities and Stockholders' Equity
|
|
Accounts payable
|
$ 459,000
|
|
Long term payable
|
371,000
|
|
Common stock (295,000 shares at $1 par)
|
295,000
|
|
Retained earnings
|
1,145,000
|
|
Total liabilities and stockholders' equity
|
$2,270,000
|
a. From a legal perspective, what is the maximum amount of dividends per share the firm could pay?
b. In terms of cash availability, what is the maximum amount of dividends per share the firm could pay?
c. Assume the firm earned an 18 percent return on stockholders' equity last year. If the board wishes to pay out 50 percent of earnings in the form of dividends, how much will dividends per share be? (Round to two places to the right of the decimal point.)