At the most recent strategic planning meeting, the board of directors of Target
ID: 2424350 • Letter: A
Question
At the most recent strategic planning meeting, the board of directors of Target Corporation has voted to issue additional stock to raise capital for major expansions for the company in the next five years. The board is considering $5 million. Take the most recent financial statements and prepare a set of projected financial statements based on the given assumptions. The CEO requests that you prepare a written report (including the financial statements) for her.
What would be the impact on the statement of retained earnings based on the given scenario if the board was to raise capital $5 million?
Explanation / Answer
The format for Statement for retained earnings is as follows:
When additional capital to the tune of $5 million is raised in the form of new share issue, the only component that changes is Dividend paid. The new shares will be paid an annual dividend, which will add up to the existing annual dividend payment.
As annual dividend payment increases, the year-end retained earnings will decrease by the amount of additional dividend paid during the year, ceteris paribus.
Statement of Retained Earnings $ Beginning Retained Earnings XXX Add: Net Profit for the Year XXX Less: Dividend Paid during the year (XXX) Ending Retained Earnings XXXRelated Questions
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