ACME Iron Balance Sheet Assets Current assets: 2014 2015 change Cash 500,000 600
ID: 2463393 • Letter: A
Question
ACME Iron
Balance Sheet
Assets
Current assets:
2014
2015
change
Cash
500,000
600,000
100,000
Investments
1,000,000
1,025,000
25,000
Inventories
110,000,000
117,000,000
7,000,000
Accounts receivable
11,750,000
12,500,000
750,000
Pre-paid expenses
2,500,000
2,600,000
100,000
Other
0
0
-
Total current assets
125,750,000
133,725,000
7,975,000
Fixed assets:
2014
2015
change
Property and equipment
165,000,000
175,000,000
10,000,000
Leasehold improvements
0
0
-
Equity and other investments
55,000,000
65,000,000
10,000,000
Less accumulated depreciation
15,000,000
15,500,000
500,000
Total fixed assets
235,000,000
255,500,000
20,500,000
Other assets:
2014
2015
change
Goodwill
75,000,000
70,000,000
(5,000,000)
Total other assets
75,000,000
70,000,000
(5,000,000)
Total assets
435,750,000
459,225,000
23,475,000
Liabilities and owner's equity
Current liabilities:
2014
2015
change
Accounts payable
40,500,000
42,400,000
1,900,000
Accrued wages
85,000,000
90,500,000
5,500,000
Accrued compensation
10,000,000
10,855,000
855,000
Income taxes payable
4,024,000
4,697,000
673,000
current portion of LT debt
5,500,000
10,350,000
4,850,000
Other
0
0
-
Total current liabilities
145,024,000
158,802,000
13,778,000
Long-term liabilities:
2014
2015
change
Long term debt
125,000,000
130,000,000
5,000,000
Total long-term liabilities
125,000,000
130,000,000
5,000,000
Owner's equity:
2014
2015
change
Common stock
122,000,000
122,000,000
-
Preferred stock
16,725,000
16,725,000
-
Accumulated retained earnings
27,001,000
31,698,000
4,697,000
Total owner's equity
165,726,000
170,423,000
4,697,000
Total liabilities and owner's equity
435,750,000
459,225,000
23,475,000
Task 7
In discussions with the CFO you have spoke about the impact of a dividend on your company’s market price and financial statements. He has asked that you and your team evaluate the impact of issuing a dividend.
Use the income statement and balance sheet provided to make recommendation for the amount of dividend (if any). How are retained earnings impacted and what does this mean for the organization?
Compute the Internal Growth Rate and Sustainable Growth Rate using current (2015) financial information and then if we issue a dividend payment of $3 million ($0.20 per share times 15 million shares).
Explain your thought process and rationale for a recommended dividend strategy.
Concept Check: Dividends are distributions of profits to your investors who placed their capital at risk for you. Theoretically every company should eventually provide a dividend distribution to their investors.
Helpful Hint: Dividends are voted on every quarter by the Board of Directors for a company; the amount of the dividend or if any is paid can be decided at that time.
ACME Iron
Balance Sheet
Assets
Current assets:
2014
2015
change
Cash
500,000
600,000
100,000
Investments
1,000,000
1,025,000
25,000
Inventories
110,000,000
117,000,000
7,000,000
Accounts receivable
11,750,000
12,500,000
750,000
Pre-paid expenses
2,500,000
2,600,000
100,000
Other
0
0
-
Total current assets
125,750,000
133,725,000
7,975,000
Fixed assets:
2014
2015
change
Property and equipment
165,000,000
175,000,000
10,000,000
Leasehold improvements
0
0
-
Equity and other investments
55,000,000
65,000,000
10,000,000
Less accumulated depreciation
15,000,000
15,500,000
500,000
Total fixed assets
235,000,000
255,500,000
20,500,000
Other assets:
2014
2015
change
Goodwill
75,000,000
70,000,000
(5,000,000)
Total other assets
75,000,000
70,000,000
(5,000,000)
Total assets
435,750,000
459,225,000
23,475,000
Liabilities and owner's equity
Current liabilities:
2014
2015
change
Accounts payable
40,500,000
42,400,000
1,900,000
Accrued wages
85,000,000
90,500,000
5,500,000
Accrued compensation
10,000,000
10,855,000
855,000
Income taxes payable
4,024,000
4,697,000
673,000
current portion of LT debt
5,500,000
10,350,000
4,850,000
Other
0
0
-
Total current liabilities
145,024,000
158,802,000
13,778,000
Long-term liabilities:
2014
2015
change
Long term debt
125,000,000
130,000,000
5,000,000
Total long-term liabilities
125,000,000
130,000,000
5,000,000
Owner's equity:
2014
2015
change
Common stock
122,000,000
122,000,000
-
Preferred stock
16,725,000
16,725,000
-
Accumulated retained earnings
27,001,000
31,698,000
4,697,000
Total owner's equity
165,726,000
170,423,000
4,697,000
Total liabilities and owner's equity
435,750,000
459,225,000
23,475,000
Explanation / Answer
Earning For 2015 = $4697000
Retantion Ratio= $1697000/$4697000 = 36.13%
Return on Equity= $4697000/$170423000 = 2.76%
Internal Growth Rate= Retantion Ratio*ROE
= .3613*.0276 = 1%
Dividend Payout ratio effects the Growth rate of Business, As dividend payout ratio increase retention ratio goes down consequenty Internal Growth rate will decrese.
Dividend Decision should be made on the basis of Availability of Return and Class of Shareholders.
If Shareholders belong to high class profile then they might not interested in dividend, While Lower and Middle class shareholder interested in dividend to meet their routine expenses.
Earning for the Year $4,697,000.00 Less: Dividend $3,000,000.00 Retantion $1,697,000.00Related Questions
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