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Problem:

Planetary Travel Co. has $240,000,000 in stockholder equity. Eighty million dollars is listed as common stock and the balance is in retained earnings. The firm has $500,000,000 in total assets and 2 percent of this value is in cash. Earnings for the year are $40,000,000 and are included in retained earnings.

Required:

Question 1: What is the legal limit on current dividends?

Question 2: What is the practical limit based on liquidity?

Question 3: If the company pays out the amount in part b, what is the dividend payout ratio? (Compute this based on total dollars rather than on a per share basis because the number of shares is not given.)

Payout ratio = Dividends/Earnings

Explain comprehensively and provide step by step solution.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91147229

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