17. Rolex Discount Jewelers is trying to determine the maximum amount of cash dividends it can pay this year. Assume its balance sheet is as follows:

Assets Cash......................................................................... $ 350,000 Accounts receivable................................................. 900,000 Fixed assets............................................................. 1,150,000 Total assets ......................................................... $2,400,000 Liabilities and Stockholders’ Equity Accounts payable.................................................... $ 395,000 Long-term notes payable ........................................ 330,000 Common stock (250,000 shares at $3 par) ............ 750,000 Retained earnings .................................................. 925,000 Total liabilities and stockholders’ equity.............. $2,400,000

a. From a legal perspective, what is the maximum amount of dividends per share the firm could pay? Is this realistic?

b. In terms of cash availability, what is the maximum amount of dividends per share the firm could pay?

c. Assume the firm earned an 18 percent return on stockholders’ equity last year. If the board wishes to pay out 50 percent of earnings in the form of dividends, how much will dividends per share be?