The Hastings Sugar Corporation has the following pattern of net income each year
ID: 2766124 • Letter: T
Question
The Hastings Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can earn a higher return on the projects than the stockholders could earn if the funds were paid out in the form of dividends.
year net income profitable capital expenditure
1 $17 million $8 million
2 $ 24 million $12 million
3 $18 million $6 million
4 $17 million $8 million
5 $16 million $9 million
a. If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years?
b. If the firm simply uses a payour ratio of 50% of the net income, how myuch in total cash dividends will be paid?
c. If the firm pays a %10 stock dividend in yearsd 2 through 5, and also pays a cash dividnd of $2.40 per share for each of the five years, how much in total dividends will be paid?
d. Assum the payout ratio in each year is to be %40 of net income and the firm will pay a %30 stock dividend in years 2 through 5. How much will dividends per share for each year be? (Assume cash dividend is paid after the stock dividend.)
year Dividends per share
1 $______
2 $______
3 $______
4 $______
5 $______
The Hastings Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can earn a higher return on the projects than the stockholders could earn if the funds were paid out in the form of dividends.
year net income profitable capital expenditure
1 $17 million $8 million
2 $ 24 million $12 million
3 $18 million $6 million
4 $17 million $8 million
5 $16 million $9 million
a. If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years?
b. If the firm simply uses a payour ratio of 50% of the net income, how myuch in total cash dividends will be paid?
c. If the firm pays a %10 stock dividend in yearsd 2 through 5, and also pays a cash dividnd of $2.40 per share for each of the five years, how much in total dividends will be paid?
d. Assum the payout ratio in each year is to be %40 of net income and the firm will pay a %30 stock dividend in years 2 through 5. How much will dividends per share for each year be? (Assume cash dividend is paid after the stock dividend.)
year Dividends per share
1 $______
2 $______
3 $______
4 $______
5 $______
Explanation / Answer
To the marginal principle of retained earnings means the dividend is paid after making expenditure of profitable capital expenditure from net income. the cash dividend paid for next five years are given below
Dividend paid
year
net income in million($)
profitable capital expenditure in million($)
Dividends in miilion ($)
A
B
C=A-B
1
17
8
9
2
24
12
12
3
18
6
12
4
17
8
9
5
16
9
7
49
The total dividend paid is $49 million
b) the payout ratio means the dividend paid out of net income @ 50% , the total dividen paid at 50% payout ratio is calculated below
The total dividen paid is $46 milliom
C &D ) require the total shares outstanding as on date to answers for these questions
Dividend paid
year
net income in million($)
profitable capital expenditure in million($)
Dividends in miilion ($)
A
B
C=A-B
1
17
8
9
2
24
12
12
3
18
6
12
4
17
8
9
5
16
9
7
49
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