Limits on dividends (LO18-3) Lunar Orbitl Co. has $240,000,000 in stockholders’ equity. 86 million dollars is listed as common stock and the balance is in retained earnings. The firm has $500,000,000 in total assets and 3 percent of this value is in cash. Earnings for the year are $40,000,000 and are included in retained earnings.
Stockholders’ equity…………………………………… $240,000,000
Common Stock ……………………………………… $86,000,000
Retained earnings ……………………………………. $ 154,000,000
Total assets……………………………………………. $500,000,000
Cash…………………………………………………… $ 15,000,000
Annual earnings ………………………………………. $ 40,000,000
- What is the legal limit on current dividends?
- What is the practical limit based on liquidity?
c. 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
Click on the WhatsApp button below or Scan the Code and text us to get a complete solution to the question above.
