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Bucky’s Apparel Inc. is considering paying a dividend on December 31, 2020. A loan covenant stipulates...

Bucky’s Apparel Inc. is considering paying a dividend on December 31, 2020. A loan covenant stipulates that the payout ratio must be less than or equal to 10%. If the company has no preferred stock outstanding, and net income is expected to be $64,000, what is the maximum value that Bucky may pay out in dividends to the common shareholders?

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Answer #1
Bucky's Apparel, Inc.
Expected Net Income $          64,000.00
Less Pereference Dividned payable 0
Net Income available for Common stock holders $          64,000.00
Maximum Dividend payout ration as per Loan Covenant= 10%
Maximum value that can be paid out as Dividend =64000*10%= $             6,400.00
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