Question

Phillips Rock and Mud is trying to determine the maximum amount of cash dividends it can...

Phillips Rock and Mud is trying to determine the maximum amount of cash dividends it can pay this year. Assume its balance sheet is as follows:

Assets
Cash $ 387,000
Accounts receivable 844,000
Fixed assets 1,069,000
Total assets $ 2,300,000
Liabilities and Stockholders' Equity
Accounts payable $ 512,000
Long term payable 375,000
Common stock (310,000 shares at $1 par) 310,000
Retained earnings 1,103,000
Total liabilities and stockholders' equity $ 2,300,000

a-1. From a legal perspective, what is the maximum amount of dividends per share the firm could pay? (Do not round intermediate calculations and round your answer to 2 decimal places.)

a-2. Is this realistic? yes/no

b. In terms of cash availability, what is the maximum amount of dividends per share the firm could pay? (Do not round intermediate calculations and round your answer to 2 decimal places.)

c. Assume the firm earned an 15 percent return on stockholders’ equity last year. If the board wishes to pay out 60 percent of earnings in the form of dividends, how much will dividends per share be? (Do not round intermediate calculations and round your answer to 2 decimal places.)

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